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“Of course, cash is still trash,” Dalio said. “Do you know how fast you’re losing buying power in cash?”
During the ongoing World Economic Forum (WEF) summit in Davos, Switzerland, he spoke on CNBC's Squawk Box.
“When I say cash is trash, what I mean is all currencies in [relation] to the euro, in relationship to the yen,” he explained. “All of those currencies like in the 1930s will be currencies that will go down in relationship to goods and services.”
Dalio is the founder of Bridgewater Associates, the world's largest hedge fund firm, which oversees $223 billion in assets. The 72-year-old American investor recommended consumers to diversify their portfolios by "getting out of cash," which he referred to as "garbage," in January 2020.
Bitcoin as ‘digital gold’
Dalio discussed a variety of topics at Davos, including equities, the global economic outlook, and the Federal Reserve's attempts to control inflation. He claimed that stock markets had grown overcrowded, and that "equities are trashier" than cash.
“Everybody is long equities, and everybody wants everything to go up,” said Dalio. “The more they hype it the more it becomes somebody else’s financial asset they’re holding. You can’t have that, so you’re going to have an environment of negative real returns.”
Bitcoin (BTC) is a popular kind of investment for billionaires at this time of global economic turmoil. Real estate and precious metals such as gold are among his safe-haven holdings.
“I think blockchain’s great,” Dalio stated. He touted cryptocurrency’s potential as a fix to what he expects to be a tough year for the U.S. economy, marked by high inflation and a lack of real returns on investments. Continuing, he said: “But let’s call it a digital gold. I think a digital gold, which would be a bitcoin kind of thing, is something that – probably in the interest of diversification of finding an alternative to gold – has a little spot relative to gold and then relative to other assets.”
Bitcoin’s inflation-hedge credentials under spotlight
Dalio's remarks come amid growing skepticism about bitcoin's ability to serve as an inflation-hedging asset. Bitcoin proponents say that it functions similarly to gold as a store of value. After its correlation to gold surged to an all-time high in 2020, many people believed BTC was poised to transform from a risky speculative asset to the crypto market's version of gold. However, with the big drop in crypto prices this year, that argument may have begun to crumble. According to Bloomberg data, the link between bitcoin and gold decreased to practically zero in January, and as bitcoin prices declined in subsequent months, gold continued to rise. According to Bloomberg, the 50-day correlation coefficient for Bitcoin and gold was around minus 0.4 in April, the lowest since 2018. A result of 1 indicates that assets are moving in lockstep, whereas a reading of -1 indicates the opposite. Instead, cryptocurrency markets have gotten more entwined with the stock market, particularly blue-chip technology equities like Apple, Amazon, and Microsoft. So far this year, the value of crypto markets has been wiped out by more than $1.5 trillion.
Dalio forecasts ‘squeeze on demand’
The founder of Bridgewater Associates, Ray Dalio, gave a bleak vision of the world economy in the year 2022. He expects inflation in the U.S and elsewhere around the world to erode the purchasing power of money, saying:
“We are in an environment that we are now going to ask ‘what is the new money?” On bonds, he said: “The Federal Reserve is going to sell, individuals are selling, foreigners are selling, and the U.S. government is selling because it has to fund its deficit. So there’s going to be a supply/demand problem, that means that it produces a squeeze.”