Ray Dalio, the billionaire co-manager of the world's largest hedge fund, is well-versed in microeconomic trends, and his long experience in tracking global economic trends has also helped him recognize growing shifts in the macroeconomic environment before they become mainstream.
One shift he predicts is coming involves the growing competition between different forms of money. And he believes Bitcoin (BTC 0.14%) will become a viable competitor among those forms -- so much so that he has allocated 2% of his own portfolio to the cryptocurrency.
But why would a billionaire take on such a large position in such a risky asset? Fortunately for those of us who are curious, he recently elaborated on his reasoning.
The billionaire's cryptocurrency of choice
During his appearance on the Lex Fridman Podcast, Dalio was asked a handful of questions on finance and economics, but eventually, the topic of Bitcoin arose. At this point, the discussion transitioned into a monologue as Dalio explained his expectations for Bitcoin's growing role in an increasingly digital future, how it stacks up against gold, and even delved into the concept of money itself.
Dalio offered several justifications to support his decision to invest in Bitcoin. At the top of that list was how far Bitcoin has come from its humble beginnings and how it has "obtained the status of having imputed value."
When the crypto launched in 2009, there were virtually no users of its network. Fast-forward to today, and the Bitcoin blockchain has become a vast decentralized network based on true organic growth. Not only has it grown exponentially, but Bitcoin's code has proven to be virtually unhackable -- a fact that doesn't get recognized enough, in Dalio's opinion.
CRYPTO: BTC
Key Data Points
The demise of the dollar
After Dalio celebrated Bitcoin's monumental rise, he then dove into his reasoning as to why it has a legitimate future as a form of currency. As he put it, the coming years and decades will likely be "an era where there will be competition of monies."
Due to the ever-inflating supplies of government-backed fiat currencies, citizens today are getting the proverbial short end of the stick. They are seeing their paychecks dwindle in purchasing power as the circulating supply of money continues to increase. As a result, Dalio believes the idea of money itself is "increasingly being considered" by the citizens of these governments.
As he put it, "money has two purposes." It should serve as a medium of exchange and a storehouse of wealth -- a combination of characteristics that Bitcoin possesses and that, in his view, currencies like the U.S. dollar are beginning to lack. In this future of alternative monies, Dalio sees Bitcoin becoming a formidable rival to fiat currencies.
Gold or digital gold
Due to its use-case similarities to gold, a common approach by investors is to create a "one or the other" dichotomy between Bitcoin and gold. But Dalio doesn't see it this way. When asked if he prefers Bitcoin or gold, Dalio explained that he sees the two as having similar characteristics, but serving different purposes.
He noted that Bitcoin possesses a role in our digital future where the ability to send value over the internet is important, but contended that there could also be a need for people to exchange value "offline." While Bitcoin transactions are anonymous, they are technically traceable.
Despite gold still providing value in today's economy, Dalio believes Bitcoin is the "younger generation's alternative to gold." As this generation begins to become more integrated into the economy, Bitcoin will likely benefit.
Advice for non-billionaires
As previously mentioned, Dalio is said to have allocated around 2% of his portfolio to Bitcoin. But Dalio has a net worth of more than $19 billion. His appetite for risk has likely receded as he looks to preserve his wealth rather than grow it.
Depending on your investing time horizon and tolerance for risk, you might feel comfortable allocating a larger share of your portfolio to a volatile asset like Bitcoin. If you are in a wealth preservation mode like Dalio, then a 2% allocation could be a healthy level for you. But those who are closer to the start of their investing journeys are more than likely to be in the market long enough to see how Dalio's predictions about competing monies play out over the long term.
