Bitcoin Is Not Looking Like a Viable Storehold of Wealth for Institutional Investors, Yet: Bridgewater Associates Executives

Rather than buying an option on a potential future. Also, it is “an attractive storehold of wealth definitely on the supply front” along with being very easily accessible, portable, and exchangeable, more so than gold.

The increased level of attention on Bitcoin now, is more to do with the macro environment than the digital currency itself, said Rebecca Patterson, Director of Investment Research at Ray Dalio founded Bridgewater Associates.

In this podcast, Patterson with Senior Portfolio Strategist Jim Haskel discussed BItcoin after Dalio wrote his views on “What I Think of Bitcoin” late last month. Patterson pointed out how

“in developed markets policymakers are doing everything they can to generate growth and inflation, and as part of that they're making cash and cash-like assets increasingly unattractive.”

All the money printing which is depreciating the currencies is being used to fund big fiscal packages. Those packages could push up inflation which presents the risk of even further depreciation of cash.

“All of this is pushing investors to seek out new storeholds of wealth,” which is something that's going to maintain its purchasing power over time, she said.

Paterson gives the example of the traditional storehold of wealth, gold, which has a deep history as something of value and very limited supply in contrast to currencies. That’s why it has historically done quite well, especially if we have high and rising inflation.

The precious metal has also served as a “pretty consistent although not perfect diversifier” in addition to being easy to transport and exchange, especially in today's digital age with gold ETFs.

When it comes to Bitcoin, the executives of the asset management firm discuss how it “certainly shares some qualities” similar to gold and is “an attractive storehold of wealth definitely on the supply front.”

Not to mention, the cryptocurrency is very easily accessible, portable, and exchangeable — “one could argue even more so than gold because it's completely digital.”

But still, it’s other qualities that make it less suitable for institutional investors, including its brief history. Only existing for a bit over a decade means

“we can't be sure going forward if it's going to be a good diversifier and or an inflation hedge.”

Patterson further points to the cryptocurrency largely used in a retail capacity and for speculation, which “can absolutely change over time if it gets greater acceptance.” Though the infrastructure has improved since the 2017 bull run, it is still pretty immature, she said.

Regulation is another lacking part which can take two paths; the first one is more draconian, suggesting a clamping down that could stem from a fear among policymakers that these private digital currencies could undermine traditional fiat currencies and maybe also monetary policy itself.

But the path more likely to evolve, especially in the US, is a slowly evolving regulatory environment that Patterson says “at the end of the day ultimately is going to engender more trust in the asset” as it would probably make original holders who are there for the anonymity and the lack of regulation, they might look for new pastures, and that could trigger some selling and some volatility for some period of time. Haskel echoing Dalio’s words surmised,

“Bitcoin doesn't currently look like a viable storehold of wealth for institutional investors; it's more like buying an option on a potential future where these issues are fixed in some way and bitcoin does become something closer to a digital gold.”

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