When billionaire investor and hedge fund manager Ray Dalio speaks, people listen. After all, Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund firm with assets under management of $160 billion. So when Dalio said that gold will become a top investment during a “paradigm shift” in global markets, the price of the yellow metal spiked. But he probably missed the fact that gold will have competition from bitcoin.
Dalio wrote in a LinkedIn post that too many people have invested in stocks and equities, which is why this asset class runs the risk of witnessing a drop in returns. In order to balance out their portfolio, investors will turn to assets such as gold. He wrote:
“Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”
So Dalio advocates that gold is the right way to go for anyone looking to diversify their portfolio at a time when most of the world seems to be invested in equities. But this is not the only reason why Dalio believes gold will witness a surge in inflows.
According to the hedge fund veteran, global conflicts and the depreciating value of money will force a flight to safety. Gold will be the asset of choice for investors looking to store their wealth at a time when central banks are busy keeping interest rates low.
Dalio’s comments would have made a lot of sense a decade ago when bitcoin was just born. After all, gold is universally considered to be a safe-haven asset that investors buy to protect their wealth in difficult times. But bitcoin is gaining the confidence of institutional investors, and there are quite a few who believe that the cryptocurrency can replace gold as a safe-haven asset.
The fact that Ray Dalio considers gold to be the primary choice for investors looking to buy a safe asset is probably based on his assumption that bitcoin is not an effective store of wealth thanks to its volatility.
But Dalio seems to be forgetting that times have changed and bitcoin is now considered an ideal replacement for gold for a ton of reasons.
First, unlike gold, bitcoin can be used to make payments. Online and offline retailers have started accepting payments in the form of bitcoin. So if you’re holding any amount of the cryptocurrency, you can head online and buy that wallet you always wanted. But just imagine buying groceries online in exchange for gold. Well, that’s not happening.
Meanwhile, bitcoin can be divided into small parts and can also be transferred easily. But if you hold a gold bar, doing all of that won’t be as easy as bitcoin. These are the reasons why there are many who believe that bitcoin will replace gold in the future.
Moreover, bitcoin has already proven its resilience during difficult times in the stock market.
The price of bitcoin rose tremendously since May when the stock market hit a speed bump and started taking a beating on account of macroeconomic tensions before being rescued by the Federal Reserve.
Indeed, investors could soon seek a flight to safety as the stock market gets ahead of itself. But don’t be surprised to see investors buying bitcoin and not gold because of the many advantages that the cryptocurrency enjoys.
Last modified: January 10, 2020 2:50 PM