In the world of Bitcoin (sometimes abbreviated as BTC), there are people known as “HODLers.” These are long-term investors who will “Hold On for Dear Life” (or HODL) even when the Bitcoin price swings wildly or enters into a prolonged bear market.
It’s easy to HODL Bitcoin when the price is rising, as it did during the first half of November. On the other hand, it might be more difficult to hold one’s position when a famous financial expert is bracing the world for an anti-Bitcoin environment.
The HODLers are now being tested as a prominent financial guru has issued a dire warning about Bitcoin’s legal status. This leads to a billion-dollar question: Should die-hard Bitcoin investors stand by their favorite cryptocurrency, or is it better to heed the warning and abandon ship?
A Closer Look at the Bitcoin Price
For anyone who counted on this as a hedge against global disaster, March of 2020 unfortunately demonstrated that when the you-know-what hits the fan, investors will dump everything including the kitchen sink.
Thus, as the novel coronavirus crisis took hold in March, traders sold off their Bitcoin holdings in order to shore up their cash positions. Stunningly, the price touched a 52-week low of $4,106.98 during that tumultuous time.
Thankfully, the HODLers prevailed in the long run. Bitcoin reclaimed the $10,000 mark during the summer and remained steady for several months.
Indeed, the price action in Bitcoin was so steady that it started to get boring after a while. With the sideways grind persisting into September, the once volatile cryptocurrency looked like it might lose its luster.
Patience, however, did pay off eventually. With hardly any warning, Bitcoin rocketed to $13,000 in October and then $16,000 in November. As of Nov. 15, the price was only slightly below the $16,000 level.
Dalio’s Dalliance with Bitcoin Commentary
People perk up and pay attention when Ray Dalio talks about financial matters. He’s the founder, Co-Chairman and Co-Chief Investment Officer of Bridgewater Associates, which is the world’s biggest hedge fund.
Dalio has commented on many financial topics. However, he hasn’t spent a whole lot of time discussing Bitcoin over the years. Yet, Dalio recently turned his attention to Bitcoin and his commentary was rather worrisome.
As he sees it, there are a number of basic problems with Bitcoin. First, Dalio says, “I today can’t take my Bitcoin yet and buy things easily with it.” Personally, I don’t see this as a permanent problem with Bitcoin as adoption is a gradual process.
Besides, it’s already possible to use Bitcoin to make purchases at e-commerce sites like Amazon (NASDAQ:AMZN) through the lightning network. I hate to say it, but Dalio might be a little bit behind the times when it comes to cryptocurrency usage.
Other Objections
Dalio continues by complaining that due to Bitcoin’s price volatility, “it’s not an effective store of wealth.” To this claim, I would counter that Dalio has notoriously proclaimed that “cash is trash,” yet many millions of people around the world store their wealth in cash.
Dalio’s most notable objection to Bitcoin, however, was that “if it becomes material, governments won’t allow it; I mean, they’ll outlaw it.”
In defense of this position, Dalio pointed out that “they” (presumably, the U.S. government) “outlawed gold.” I don’t wish to show disrespect to a revered financier, but this argument holds little weight.
We can only assume that Dalio’s referring to President Roosevelt’s executive order from 1933. This required U.S. citizens to sell their gold to the Federal Reserve for $20.67 per troy ounce. Exceptions were made for gold in amounts less than $100, as well as “gold coins having a recognized special value to collectors of rare and unusual coins.”
And so, gold was never really “outlawed” in the sense that Dalio seems to be implying. Moreover, we have yet to hear presumptive President-elect Biden make any statements suggesting that a ban is likely.
The Bottom Line
Faithful Bitcoin HODLers don’t need to let Dalio’s misguided objections worry them. Dalio is a successful financial expert, but he could be completely wrong about the future of Bitcoin.
The claim about the gold ban is misleading and won’t necessarily apply to Bitcoin. It’s evident that Dalio’s not a cryptocurrency aficionado. Regardless, there’s no reason to dump your Bitcoin if you believe in its future.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
