Ray Dalio's new book: Bitcoin is a wonderful invention, considering setting up a Bitcoin investment fund

Original title: "DeepInsight Translation: Bridgewater's Dalio intends to set up a new fund to invest in Bitcoin"
Written by: Ray Dalio, Founder of Bridgewater Associates Translated by: Zhou Yayue, from DeepQuant

Ray Dalio, the head of the world's largest hedge fund, has just released his latest long article, " What I Think of Bitcoin ". The DeepQuant team immediately grabbed and read it. The original article elaborated on Ray Dalio's thoughts on Bitcoin. On the one hand, Ray Dalio softened his previous prejudice against Bitcoin and believed that Bitcoin was a wonderful invention. On the other hand, he also raised various risks from the perspective of institutional entry, which is very valuable for reference.

This article is only a brief review of the Bloomberg website translated by DeepInsight, which is easier for readers to grasp quickly. The current media's interpretation of the fragmentary words is extremely divided. In the propaganda of traditional media, Dalio believes that Bitcoin is a "meaningless invention" and may lose most of its value. In the media propaganda of the new currency circle, Dalio believes that Bitcoin is a "wonderful invention" and intends to establish a new fund to invest in Bitcoin. This is related to Dalio's writing style that has always been both sides, but for quantitative practitioners, independent and objective multi-perspective thinking is more important. Therefore, the DeepQuant team will translate this Bloomberg article in detail, and will interpret Dalio's original text in the future, so stay tuned.

Dalio's change of attitude represents the general psychology of Wall Street institutions, which means that more Wall Street investment institutions have realized the value of Bitcoin. In the process of global central banks flooding the market with money, Bitcoin can effectively store value and thus preserve wealth. If traditional funds and old money rush into the market, everything about Bitcoin will be unimaginable.

Ray Dalio, Founder of Bridgewater Associates

On Thursday, January 28, Ray Dalio, founder of the world's largest hedge fund Bridgewater, wrote in a 14-page daily newsletter column sent to clients that Bitcoin is "one hell of an invention" and that Bridgewater is considering using a new fund to invest in encrypted digital currencies in order to preserve wealth for clients when fiat currencies depreciate.

“To have invented a new type of money through a system programmed in a computer that has been in use for about 10 years and has rapidly gained popularity as both a currency and a storehold of wealth is a remarkable achievement,” Dalio wrote in a note to clients that was later posted on Bridgewater’s website. “There are not many alternative assets to gold at this time, with demand for it increasing.

However, like others, Dalio said he finds it challenging to value digital assets. While Bitcoin has the potential to make investors "very rich" and "disrupt the existing monetary system," there are risks. Cryptocurrencies could be easily hacked and restricted by governments that want to control the money supply, he said.

Dalio said he sees Bitcoin as a "long-term bet on a highly unknown future" and that investing in it means realizing that Bitcoin could lose about 80%. Although Dalio is not fully supportive, he is the most important person among hedge fund heavyweights who sees a bright future for Bitcoin. Compared to Dalio, Paul Tudor Jones of Tudor Investment Corp. and Alan Howard, founder of Brevan Howard Asset Management, are more bullish.

Alan Howard is part owner of One River Digital Asset Management and an investor in its cryptocurrency fund. He also owns Elwood Asset Management, which runs an index to track cryptocurrencies and blockchain companies and provides some trading services, market analysis and technical support.

Paul Jones began buying Bitcoin in May, calling it a gold-like hedge against inflation and the "fastest horse" in the cash alternative space. Since then, Bitcoin's price has tripled. Last week, BlackRock Inc., the world's largest asset manager, took its first step into cryptocurrencies. The company notified regulators that cash-settled Bitcoin futures will be eligible for investment in two of its funds.

Before the coronavirus pandemic, Dalio had been grappling with the question of how to preserve wealth in a world of zero interest rates, debt monetization and calls for increased fiscal spending. He said a paradigm shift was underway in the global economy and that eventually investments that are favorable now, such as stocks and credit, will not perform well.

In 2019, he asked: "What will be the second best currency or store of wealth when most reserve currency bankers want to debase currencies in a fiat currency system?" and suggested gold as a way to reduce risk and improve returns.

In a note published Thursday, Dalio expanded on that thinking, saying he felt compelled to "clarify my views on Bitcoin" and warning clients that he is not an expert.

Some of his other comments:

• Bitcoin has successfully transitioned from the “valley of death” to something that could potentially be valuable.

• “Since there aren’t many such gold-like storehold of wealth assets that can be held privately, and the market size is relatively small, there is the possibility that Bitcoin and its competitors could fill this growing demand.”

• Another risk is supply: While a finite number of bitcoins can be mined, there’s nothing stopping new cryptocurrencies from being created, and “I think there will be better coins that come along and replace Bitcoin.”

• It is naive to think that digital assets are completely immune to hacking when the Department of Defense cannot protect its systems from hackers.

• If there are restrictions on the use of Bitcoin, "then the demand for Bitcoin will decrease."

• “Don’t think that the risk of governments banning Bitcoin and its competitors is alarmist. In my opinion, the more successful Bitcoin is, the more likely it is.”

• "My colleagues and I are focused on finding alternative ways to store wealth assets and expect Bridgewater will soon offer alternative cash funds and wealth management funds to better respond to the currency and credit depreciation we expect, which we believe is both a significant risk and an opportunity. We will certainly consider Bitcoin."