Why Is Ray Dalio Wrong?

By September 24, 2021September 30th, 2021No Comments
Why Is Ray Dalio Wrong?

Bitcoin is one of those concepts that is a prime example of the Dunning Kruger effect – where just a little knowledge, some vague idea about it, gives you the illusion of having mastered it. However, in reality, having authentic knowledge about Bitcoin can be challenging. It is a very volatile sector and has aspects and trends that evolve daily.

But do you know what is worse than having no knowledge about an industry? Half-baked knowledge and understanding about it. And Ray Dalio might have gone out on a limb to prove this with his recent statements.

And we say this with all due respect. After all, Raymond Thomas Dalio is a famous American investor and hedge fund manager. He was the co-chief investment officer at the world’s most prestigious hedge fund, Bridgewater Associates. Dalio started the hedge fund in 1975 from his two-bedroom flat. It was imbued with a $5 million investment from the World Bank’s retirement firm in less than a decade. 

Dalio is considered to be one of the forerunners of the finance world. He let the masses know about the now commonly used practices such as portable alpha and risk parity. For someone so celebrated in the finance world, Dalio’s recent comment on Bitcoins came as a shock to the public. Even though this is not the first time he has been wrong about a certain topic. 

Before this in 2019, Forbes had called his ideas on capitalism pretty flawed as well. As it turns out, the ‘Steve Jobs of investing’ might not be getting all his investment opinions correct. 

The Controversial Bitcoin Statement 

In an interview with CNBC about a week ago, Ray Dalio made quite a stir with his remarks. From the U.S’s idea of spending to how government regulation might kill crypto, Dailo had some interesting ideas to share. In Ray Dalio’s opinion, the increasing success of Bitcoin might become the reason for their neutralization by governments and other regulators that support the traditional currency. This means that the government holds power to cut the growth of the aborning crypto market. 

He added that Bitcoin might not have any “intrinsic value.” It is interesting to know that Ray Dalio’s comment came hand in hand with the traditional market struggling to rise with the Dow Jones Industrial Average DJIA, the S&P 500 index SPX and the Nasdaq Composite COMP aiming to break a recent downbeat trend in trading. 

“You have El Salvador taking on it, and you have India and China getting rid of it. And you have the United States talking about how to regulate it, and it could still be controlled.”  

Ray Dalio remarked.

With the above statement, Dalio compared bitcoins with dollars, forgetting that both are of immense importance individually. While Bitcoin is growing to be the world’s strongest asset, the dollar remains the world’s strongest currency.

In addition, China has not gotten “rid” of Bitcoin. In a recent move, the Chinese government prohibited Bitcoin mining. If we are to believe economists, it was rather an unplanned and poorly executed move on the country’s part and resulted in its removal from Bitcoin’s global hash rate.

Ray Dalio further went on to ascertain his lack of understanding of Bitcoin when he stated that gold might have more value than crypto. While this is highly debatable, the billionaire investor’s lack of knowledge has not prevented him from purchasing bitcoins as a hedge against inflation, indicating that he understands that Bitcoin is one, if not the best, store of value across space-time, and scale.

He said:

“I think it’s worth considering all the alternatives to cash and all the alternatives to the other financial assets. Bitcoin is a possibility. I have a certain amount of money in bitcoin.” 

Why We Think Ray Dalio Is Wrong

The major argument of Ray Dalio’s statement was that he does not see Bitcoin as a store of value compared to gold. The reason for which he provided by saying that the government can outlaw Bitcoin at any given point in time. However, as believed by most investors over the years, Bitcoin has already ingrained gold’s virtues that were of importance to the hedge market. 

Coming to Dalio’s belief that the government can outlaw Bitcoin, it is important to note that Bitcoins are not tangible like gold. They have a very vast network across the globe. In addition, it is nearly impossible for the government to capture any currency. Thus, governments can regulate the flow of Bitcoins, as we have seen in China and closer home, in India, but they cannot put a complete ban on the currency. 

Plus, it is not that gold does not possess any hardships to the current market. The tangible nature of gold makes it harder to keep safe and makes it prone to confiscation by the government and third-party agencies. 

Conclusion

Even though Ray Dalio is famous for his insights into the investment market, he is also renowned for his controversial statements. Generally speaking, crypto can be a complex concept to grasp for those from conventional finance backgrounds or even the boomer generation.

Why should Ray Dalio be any different? 

However, since he is such an important figure in the investment industry, his opinion can directly influence the price of Bitcoin and its further demand. It can also discourage a lot of budding investors from stepping into cryptocurrency. 

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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