Bitcoin is a bubble but gold is money says world’s biggest hedge fund manager
Gold is a better store of value, Ray Dalio of $160 billion Bridgewater tells CNBC
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The manager of the world’s biggest hedge fund, Ray Dalio has declared his preference for gold over bitcoin.
Earlier this week Dalio, of $160bn Bridgewater Associates, labelled bitcoin ‘a bubble’.Dalio believes the 300% plus rise in price of the most popular cryptocurrency is down to speculation over its expected price rise, as opposed to confidence in its future role as a currency.
Dalio’s comments come less than a week after J.P. Morgan’s Jamie Dimon said bitcoin is worse than tulip bulbs and a month after Professor Robert Shiller said it was the best example of a bubble right now.
Bitcoin had a tough week last week, taking a hit following an announcement by Chinese authorities to shut down exchanges. However, it has since begun to recover.
It’s strong performance this year has prompted many experienced investors and economists to call it out for what it seems to be a bubble.
Bitcoin is not a store of value, it’s a bubble
It’s not an effective store of wealth because it has volatility to it, unlike goldBitcoin is a highly speculative market. Bitcoin is a bubble.
For Dalio speaking in an interview withCNBC, bitcoin is in too speculative a market for it to become an effective store of wealth. This has long been the case with the cryptocurrency. This is a problem that may well continue and may prevent it becoming astore of value.
Why will this continue?Back in August Dalio expressed concern over investors becoming complacent in markets and how this can then leadto volatility:
People adapt to the circumstances they have experienced and are then surprised when the future is different than the past. In other words, mostpeople are inclined to assume that the circumstances they have recently encountered will persist, which leads them to change what they are doing to be consistent with that recently experienced environment.
This is what we are now seeing with bitcoin. Traders have pretty much only seen bitcoin rise over the last couple of years. This has come with high levels of volatility, but overall the price has gone up. For bitcoin investors, this is now thenorm. This is what they have come to expect.
So they keep pushing the price (and volatility) up because, for now, what on earth else would possible happen?
When asked if bitcoin is in a bubble, evangelists are offended you could ask such a thing. Following Professor Shiller’s comments about bitcoin’s bubbliness we notedan articleon CoinTelegraph which was about as far from a far economic argument for something not being in a bubble as you could get:
Looking at a chart of the growth of sectors that experienced bubbles since 1990, there is a familiar pattern. However, Bitcoin skyrockets off and away from that chart, showing no correlation with the tech bubble, the homebuilders bubble or the biotech bubble.
Sobecause bitcoin skyrockets off the chart then it’s not in a bubble.
As Dalio points out, gold is not volatile. Over hundreds of years it has consistently performed according to markets around it. It has rarely surprised anyone, ‘nor has the gold market been accused of any kind of irrational exuberance.
This makes gold an effective store of value. You are rarely surprised by the price of it, you are unlikely to check your gold savings account from one day to the next and find the price down by 40% in less than a week. This is not the case for bitcoin.
Bitcoin is not a currency
There are two things that are required for a currency. The first thing is that you can transact in it, it’s a medium of exchange. The second thing is it’s a store of value. Bitcoin todayyou can’t spend it very easily.
We take these criteria, and we define a bubble based on those criteria, bitcoin is a bubble. It’s a shame it could be a currency, it could work conceptionally, but the amount of speculation that’s going on and the lack of transaction
At this point it would be unfair not to remind Dalio that the bitcoin infrastructure is still relatively young. Of course it is difficult to spend bitcoin as the ecosystem is still in its infancy.
You have to give credit where its due for how far exchanges and merchants have come given the youth of the currency.
However, there are few people actuallyspendingbitcoin. The majority of transactions come from speculators.
This ties into the point above, regardless of how many merchants accept bitcoin if the price can drop by 40% and then recover by 25% (as it did last week) how on earth can I expect to do the weekly shop with it?
Like bitcoin, gold is borderless in terms of where it can be accepted. The difference is that I know the price stability and its long-time role as a medium of exchange.
For bitcoin, this is just not a priority for those trading it on a daily basis. It is just about getting the price up and cashing in on those gains. It is all about speculation for most buyers.
Threat of government
One of the big selling points for early bitcoin adopters was its ability to operate outside of the eyes of ‘the Feds’.In truth, bitcoin transactions are not anonymous, as evidenced by US authorities&