10/23/2017 / By Ethan Huff
Yet another financial expert is sounding the alarm on what he believes to be a widespread misconception about the nature of Bitcoin. The popular cryptocurrency, Bridgewater Associates founder Ray Dalio stated during a recent interview on CNBC, isn’t stable, nor is it actually worth the amount of money at which it is currently valued.
Like real estate in 2005-2006, Bitcoin is in the throes of a massive bubble, the 68-year-old head of the world’s largest hedge fund claims. Not only that, but Bitcoin is a difficult currency to spend, due to both its volatility and the platform on which it runs, which processes transactions at a very slow speed. All of these factors and more, he says, make Bitcoin a not-so-positive store of value in the real world.
During his interview, Dalio explained how all of those investors out there who are looking to get rich quick from Bitcoin are going to be sorely disappointed when all is said and done. Speculative investing in Bitcoin, he says, is not only greatly undermining Bitcoin’s functionality as a currency, but it is also creating a scenario in which Bitcoin is becoming too volatile to trust as a solid store of value.
“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 today … you can’t spend it very easily,” Dalio is quoted as saying.
“In terms of a storehold of wealth, it’s not an effective storehold of wealth because it has volatility to it. Unlike gold, let’s say, which reflects the value of money, its more stable than the value of money, bitcoin is a highly speculative market.”
Beyond this, one of the unique characteristics that first drew people to Bitcoin in the first place – the anonymity of its ownership and use – may not last forever, according to Dalio. He points to the Internal Revenue Service’s (IRS) lawsuit against Coinbase, a popular U.S.-based Bitcoin exchange, as an example of where things appear to be headed.
This IRS lawsuit included demands by the tax collection agency of client transactions that took place within the system. This probe was the first clue that even many diehard Bitcoin supporters admitted was probably the writing on the wall for Bitcoin’s future as becoming just another government-controlled form of currency. It is already claimed that the government has the tools to trace Bitcoin back to its respective owners, which means the days of Bitcoin anonymity may already be over.
“The idea that it will be private in terms of transaction … in other words people won’t know what you’re doing and it will be a private currency … is really questionable,” Dalio says.
When you combine this erosion of Bitcoin anonymity with the wild speculative investment practices that are driving its price all over the place, there’s only one conclusion that the savvy investor can make about Bitcoin, and this conclusion is that the cryptocurrency is in a bubble. And everyone knows that, at some point, every bubble reaches the point where it’s only recourse is to burst.
“It’s a shame,” Dalio says, noting that, conceptually, Bitcoin is a great idea. “But the amount of speculation that’s going on and the lack of transaction,” he adds, “the idea that it will be private in terms of transaction … is really questionable if you look at what’s gone on in terms of governments to examine it.”
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