Why Bitcoin is this billionaire’s favorite cryptocurrency

Ray Dalio, the billionaire co-manager of the world’s largest hedge fund, is well acquainted with microeconomic trends, and his extensive experience tracking global economic trends has also helped him spot emerging changes in the macroeconomic environment before they become mainstream.

One shift he predicts involves growing competition between different forms of money. And he believes Bitcoin (BTC 0.77%) is becoming a viable competitor among these forms – so much so that it has allocated 2% of its own portfolio to the cryptocurrency.

But why would a billionaire take such a large position in such a risky asset? Luckily for those of us who are curious, he recently explained his reasoning in more detail.

The billionaire’s cryptocurrency of choice

During his appearance on the Lex Fridman PodcastDalio was asked a handful of questions about finance and economics, but eventually the topic of Bitcoin came up. At this point, the discussion descended into a monologue as Dalio explained his expectations for Bitcoin’s growing role in an increasingly digital future, how it compares to gold, and even delved into the concept of money itself.

Dalio offered several reasons 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 “gained imputed value status.”

When the crypto was launched in 2009, there were practically no users of its network. Fast forward to today, and the Bitcoin blockchain has grown into a massive decentralized network powered by true organic growth. Not only has it grown exponentially, but bitcoin’s code has also proven to be virtually unhackable — a fact that Dalio feels doesn’t get enough recognition.

The Fall of the Dollar

After celebrating bitcoin’s monumental rise, Dalio elaborated on his argument as to why bitcoin has a legitimate future as a means of payment. As he put it, the years and decades to come are likely to be “an era where there will be competition for money”.

Today, due to the ever-increasing supply of government-backed fiat currencies, citizens are literally getting the short end of the stick. They see their paychecks dwindling in purchasing power while the money supply continues to increase. As a result, Dalio believes the very idea of ​​money is “increasingly considered” by the citizens of those governments.

As he put it, “Money has two purposes.” It is intended to serve as a medium of exchange and a store of wealth – a combination of qualities that Bitcoin possesses and that he believes currencies like the US dollar are beginning to lack. In this alternative money future, Dalio sees Bitcoin becoming a formidable rival for fiat currencies.

Gold or digital gold

Due to the similarities in use case with 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 that way. When asked if he prefers bitcoin or gold, Dalio explained that he thinks the two have similar properties but serve different purposes.

He noted that bitcoin has a role to play in our digital future, where the ability to send value over the internet is important, but argued that there might also be a need to exchange value “offline”. Bitcoin transactions are anonymous, but technically traceable.

Although gold still holds 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 is likely to benefit.

Tips for non-billionaires

As previously mentioned, Dalio is said to have allocated around 2% of its portfolio to Bitcoin. But Dalio has a net worth of more than $19 billion. His risk tolerance has probably decreased as he tries to preserve his wealth rather than grow it.

Depending on your investment horizon and risk tolerance, you may feel comfortable allocating a larger portion of your portfolio to a volatile asset like Bitcoin. If you’re in a wealth preservation mode like Dalio, an allocation of 2% could be a healthy level for you. But those closer to the start of their investing journey will most likely be in the market long enough to see how Dalio’s predictions about competing monies play out over the long term.

RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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