One change he foresees is the growing competition between different forms of money. And he believes bitcoins (Bitcoin 0.75%) will become a viable competitor among these forms, so much so that it has allocated 2% of its portfolio to cryptocurrency.
But why would a billionaire take such a large position in such a risky asset? Fortunately for those of us who are curious, he recently elaborated on his reasoning.
The Billionaire's Favorite Cryptocurrency
During his appearance on the Lex Fridman Podcast, Dalio was asked about finance and economics, but eventually the topic of Bitcoin came up. At this point, the discussion turned 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 deeper into the concept of money itself.
Dalio offered several justifications for his decision to invest in Bitcoin. Topping the list was how far Bitcoin has come from its humble beginnings and how it has "achieved the status of ascribed value."
When the cryptocurrency launched in 2009, there were virtually no users on its network. Fast forward to today, and the Bitcoin blockchain has grown into a vast decentralized network based on true organic growth. Not only has it grown exponentially, but Bitcoin's code has proven to be virtually unbreakable, a fact that isn't being sufficiently recognized, according to Dalio.
the end of the dollar
After celebrating Bitcoin's monumental rise, Dalio delved into his reasoning for why it has a legitimate future as a form of currency. As he put it, the coming years and decades will likely be "an era of monetary competition."
With the ever-increasing supply of government-backed fiat currencies, today's citizens are getting the short end of the stick. They're seeing the purchasing power of their salaries decline as the circulating money supply continues to increase. As a result, Dalio believes that the very idea of money is "increasingly considered" by citizens of these governments.
As he put it, "money has two purposes." It's supposed to serve as a medium of exchange and a store of wealth, a combination of characteristics that Bitcoin possesses and that, in his view, currencies like the US dollar are beginning to lack. In this alternative monetary future, Dalio sees Bitcoin becoming a formidable rival to fiat currencies.
Gold or digital gold
Due to their similar use cases to gold, a common investor approach is to create an "either/or" dichotomy between Bitcoin and gold. But Dalio doesn't see it that way. When asked whether he prefers Bitcoin or gold, Dalio explained that he sees them as having similar characteristics but different purposes.
He noted that Bitcoin occupies a place in our digital future where the ability to send value over the internet is important, but argued that there may also be a need for people to exchange value offline. While Bitcoin transactions are anonymous, they are technically traceable.
While gold still provides value in today's economy, Dalio believes Bitcoin is "the alternative to gold for the younger generation." As this generation begins to become more integrated into the economy, Bitcoin will likely benefit.
Advice for Non-Billionaires
As mentioned above, Dalio reportedly allocated about $21T of his portfolio to Bitcoin. However, Dalio has a net worth of over $19 billion. His risk appetite has likely diminished as he seeks to preserve his wealth rather than increase 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 conservation mode like Dalio, an allocation of 2% may be a healthy level for you. But those closer to the beginning of their investment journeys will likely stick around long enough to see how Dalio's predictions about competing money play out in the long run.
RJ Fulton holds positions in Bitcoin. The Motley Fool holds positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
