CRYPTO MOVERS AND PRICES
Crypto was broadly higher this morning with Cardano (ADA) +30%, the best performer in the Top 10. Ripple (XRP) is the worst performer of the large coins as it continues to fall following its own “Reddit rally.”
Crypto Story of the Day
On Friday, investor Ray Dalio wrote a newsletter titled “What I Think About Bitcoin,” in which he described the asset as “one hell of an invention.” The endorsement from Dalio, the latest in a spree of high-profile investors to express revised views on the asset, is a tepid one and reflects the learning curve some institutional investors are yet to overcome.
Dalio has previously been an ardent critic of BTC. For example, in 2017 he dismissed BTC as a “bubble'' and described other cryptocurrencies as having the potential to compete with BTC. 4 years later, Dalio speculates that due to a lack of assets that offer personal custody with a “gold-like [storeholding] of wealth,” there “exists the possibility that [BTC] and its competitors can fill that growing need.”
Dalio further expands on his thesis of BTC competition, explaining that other “[BTC]-like” assets will emerge and that the interaction between competing cryptocurrencies will impact BTC’s price. Dalio writes that he assumes “that better ones will come along and displace this one…” because the way the coin works is fixed, “it won’t be able to evolve…” He also describes potential hacks as a “risk that [he] can’t ignore,” noting that BTC can be held offline in cold storage. He does, however, understand it’s “difficult to do and that very few people actually do it.”
In a portion of the newsletter written by Bridgewater analysts, 3 challenges that could “slow broader adoption by institutional investors” are described as follows:
2) Regulatory tail risks and the risk of some existing owners selling if regulation is established because they “prioritize a lack of public oversight around the asset,” and;
3) The fact that “current levels of liquidity still constitute real structural challenges to holding Bitcoin for large traditional institutions.”
According to the Bridgewater analysts, BTC’s high turnover when compared to gold, “combined with questionable volume data reported by unregulated exchanges, creates the illusion of increased liquidity.” In reality, this “high turnover...could reflect [BTC’s] relatively more speculative nature.” Regarding BTC’s attractiveness as an investment, the coin’s finite supply and global accessibility and portability are highlighted.
Ray Dalio has objectively done amazing things over the past 4 decades at Bridgewater. Having said that, we describe his new take on BTC as an endorsement, due only to the dismissiveness of his previous views.
We disagree with several core arguments presented by Dalio. First, the assertion that a new asset could displace BTC ignores unique circumstances of the asset’s creation. BTC’s organic history and emergence from obscure internet forums would be difficult to repeat, which he neglects to address. The idea that BTC doesn’t change is wrong: we’ve seen it in the Taproot upgrade, SegWit, and so on. Additionally, the view that very few people actually use cold storage is also wrong, especially considering the popularity of hardware for that type of custodying technique like Trezor and Ledger wallets.
Considering that Dalio managed to maintain the 4-year-old position that BTC could be displaced by other assets and essentially only reversed his view regarding the asset as a bubble, we aren’t sure how much of his position has truly evolved.
Considering Dalio’s omission of key blockchain data such as hash rate and decreasing exchange balances, we’re inclined to believe he hasn’t utilized the usually well-informed and proactive approach to evaluate BTC and cryptocurrency that he’s previously employed in other sectors.