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Dalio, the founder of Bridgewater Fund, said that in the context of inflation, he personally prefers to buy Bitcoin rather than bonds.
Original title: “Dalio: Holding some bitcoins will experience more inflation, and Chinese assets are attractive”
Written by: Zhu Xi, Gao Xing and Gong Shuxin Source: Wall Street
Dalio, the founder of the world’s largest hedge fund Bridgewater Fund, said in an interview at CoinDesk that he will face more inflation in the future. In such an environment, cash is rubbish, and Bitcoin as a means of storing wealth is affected. welcome. The interview was recorded on May 6th and was not made public until the event on Monday.
Dalio: owns “some” bitcoins
During his interview, Dalio stated that the U.S. dollar is on the verge of depreciation. The last time a similar situation occurred was in 1971. In such a big environment, Bitcoin, which is similar to gold in nature, is becoming more and more attractive as a saving tool. Dalio stated that in the context of inflation, he personally prefers to buy bitcoins rather than bonds.
During the interview, Dalio voluntarily stated that he holds “some” Bitcoin. However, he did not disclose the price and quantity of bitcoin he bought. When talking about transaction efficiency, Dalio believes that Ethereum is relatively more efficient, which also echoes the views of Goldman Sachs.
Dalio’s attitude towards Bitcoin has changed significantly. His latest statement of holding “some” bitcoins is his strongest affirmation of cryptocurrencies so far.
As recently as November last year, Dalio also expressed doubts about Bitcoin, saying that he “may have overlooked something”, and he is happy to accept corrections, but he still does not approve of Bitcoin’s properties as a currency. At that time, he pointed out the four major problems of Bitcoin: First, Bitcoin is not a very good medium of exchange, and you can’t buy too many things at all; Second, the value of Bitcoin fluctuates greatly, and at the same time, it is not much related to prices. It is not a good wealth storage medium; third, if Bitcoin is successful enough to pose a threat to the government-controlled currency, the government will declare it illegal and make the use of Bitcoin a dangerous behavior; fourth, it is related to global gold The third largest reserve asset of the central bank is different. It is totally unimaginable that the central bank, large institutional investors, and multinational corporations will use it.
In January of this year, Dalio stated that there is a possibility that Bitcoin and its competitors can meet the ever-increasing demand for asset preservation.
However, Dalio also pointed out in the latest dialogue that governments of various countries may suppress Bitcoin in order to prevent Bitcoin from threatening their own currency systems. The biggest risk of Bitcoin is that it is too successful. This is consistent with his previous views. Dalio stated that the government has the ability to control almost any product, including digital currencies such as Bitcoin. The government may worry that bondholders will sell bonds in exchange for Bitcoin. The more money you get in (Bitcoin), the more people are willing to hold Bitcoin instead of bonds. Then the more things like this happen, more and more money will enter Bitcoin instead of credit, and then (the government) will lose control of it.
Some market views believe that the traditional financial industry has begun to tentatively embrace cryptocurrencies. Some people hope to make profits from their fluctuations, while others are seeking a solution when the governments of various countries “release water” during the COVID-19 period. A safe haven for inflation.
Bitcoin once fell below the US$32,000 mark during the weekend. At that time, after the regulatory authorities stated that they would crack down on Bitcoin mining and trading activities, Huobi.com’s Huobi Mall was also revealed to have suspended the provision of mining machines and equipment for users in mainland China. Derivative services. But then, Bitcoin prices rebounded significantly. On Monday, Musk tweeted that miners are committed to operating in a more environmentally friendly way, and Bitcoin hit the top line of $39,000.
Inflation is coming
Dalio mentioned inflation many times in the dialogue. He said that there are two types of inflation, one is caused by the relationship between supply and demand, in this case, the demand for labor is high, but the production capacity is low, leading to price increases. Another type of inflation is currency inflation caused by currency devaluation. With large amounts of money being injected into the economy, the two types of inflation are intertwined.
Dalio said that because money is scattered everywhere, we will have a lot of demand. At the same time, as the money supply increases, the yield has dropped to lows as investors snap up other assets such as bonds and real estate. This will change the cash in the hands of individuals, and it will continue, because cash is rubbish. Dalio said he had to say that about cash because it would bring negative real returns.
Dalio believes that the second type of inflation will eventually dominate. This may be beneficial for assets such as real estate, stocks, and cryptocurrencies, but only to a certain extent. As the prices of these assets rise, their expected future yields will fall. When their yields are close to interest rates, then there is no longer any incentive to buy these assets. At this time there will be trouble. However, tightening monetary policy will become very difficult, because once you do, everything will fall apart. Everything is sensitive to interest rates. At that time, the central bank will have to print more money, which may eventually lead to a negative real return on assets, although the nominal return is still growing on the surface, just like what happened in the 1970s.
Dollar: back to 1971
Dalio introduced his research on the rise and fall of global reserve currencies, including the Dutch guilder, the British pound and the U.S. dollar. He said that reserve currencies can operate in three “cycles” that may occur at the same time: the creation cycle of debt and financial assets; the internal cohesion conflict cycle (accompanied by the expansion of wealth and value gaps); and another cycle of the rise of powerful forces. Whether a currency can survive these cycles depends on the economic strength behind the global reserve currency. The dollar is currently in the middle of the first cycle—debt and credit create purchasing power.
Dalio said the government debt will eventually need to be repaid. However, these debts have been issued, but (repayment) has become increasingly difficult. All financial assets have “power” over physical objects. When their scale becomes very large, but when the motivation to hold them no longer exists, they will encounter problems. This situation has happened before in the United States. In the 1960s, U.S. federal spending exploded, and the increase in debt eventually led to a sharp drop in U.S. gold reserves. So Nixon announced that the United States would break away from the gold standard. Since then, the U.S. dollar has been a “legal” currency. Dalio stated that the current situation is similar to that of 1971. Looking ahead to the budget, we know that the United States will need more money and more debt.
Do you need to borrow money? Then you have to print money. Do you need more money? Then increase taxes. This creates dynamics. The painful experience in 1971 let me know that this will cause stocks to rise, and it will also cause gold, bitcoin, real estate, etc., to rise, because the dollar is depreciating. This is the cycle we are in right now.
Chinese assets are attractive
Dalio said that China has an attractive bond market and an attractive and more open capital market. Moreover, as they become more open, large investors—institutional investors, central banks, etc., will think that they have insufficient weight to invest in China. China’s capital market attracts investment, which will promote the appreciation of the renminbi.
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