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John Engle
John Engle
Articles (577) 

Ray Dalio: Still Bearish on Bitcoin

Persistent volatility makes the hedge fund billionaire leery of the cryptocurrency's recent rise

November 25, 2020 | About:

On Nov. 17, Ray Dalio (Trades, Portfolio) took to Twitter to share his latest thoughts on bitcoin in light of its latest upward surge. While asserting that his opinion was open for change, provided he received sufficiently compelling counterarguments, Dalio made it clear that his skepticism of bitcoin, which is based in large part on the cryptocurrency's continued volatility, has yet to be assuaged.

Still too volatile for Dalio

According to Dalio, the wild swings in bitcoin's value make it unsuitable for use either as a medium of exchange or as a store of value:

"Bitcoin is not very good as a medium of exchange because you can buy much with it (I presume that's because it's too volatile for most merchants to use, but correct me if I'm wrong)...It's not very good as a store-hold of wealth because its volatility is great and has little correlation with the prices of what I need to buy so owning it doesn't protect my buying power."

Bitcoin has certainly been no stranger to volatility over the course of its relatively short existence. Its latest surge, which gained momentum following last month's announcement that PayPal Holdings Inc. (NASDAQ:PYPL) would allow cryptocurrency transactions beginning in 2021. By Nov. 24, the prospect of crypto payments being made available to PayPal's 26 million registered vendors carried bitcoin over the $19,000 mark for the first time since its initial parabolic rise in late 2017, marking yet another shift in momentum for the leading cryptocurrency.

Signs of stability ahead

With such a turbulent trading history, it is understandable that Dalio has remained skeptical of bitcoin to date. However, there are indications that bitcoin's historic volatility may be subsiding, at least to a degree, as the Globe & Mail reported on Nov. 19:

"Traders who say there is more participation by bigger investors point to lower levels of volatility than during the 2017 bubble. Ten-day price swings against the dollar between end-June and mid-November - a period when bitcoin prices nearly doubled - were well under historical averages."

In other words, the latest surge is very different from the one in 2017, which ended in disaster for many speculators who got caught up in the trading mania. This time around, there is considerably more institutional money involved, as well as substantially more allocations from family offices. That may help explain the relatively more modest volatility in the asset. However, retail investors are still in the driver's seat.

My verdict

Dalio is hardly the only major financial operator to doubt bitcoin's viability as a legitimate currency alternative. As I have discussed previously, hedge fund billionaire George Soros (Trades, Portfolio) is also dubious about its prospects. So is JPMorgan (NYSE:JPM) CEO Jamie Dimon.

While cryptocurrencies may see freer use thanks to PayPal's recent decision, their fluctuating values make them a tough sell as a serious currency alternative, in my assessment. Ultimately, bitcoin is still essentially a speculative asset, not a true currency. Investors would be wise to approach this asset class accordingly.

Disclosure: No positions.

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About the author:

John Engle
John Engle is president of Almington Capital Merchant Bankers and chief investment officer of the Cannabis Capital Group. John specializes in value and special situation strategies. He holds a bachelor's degree in economics from Trinity College Dublin, a diploma in finance from the London School of Economics and an MBA from the University of Oxford.

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