Bridgewater Associates, the world's largest hedge fund, is looking at Bitcoin (BTC-USD) as an asset as investors seek alternatives to bonds and currencies.
The hedge fund behemoth weighed in publicly on Bitcoin for the first time in its "Daily Observations" note to clients on Thursday.
In note's preamble, founder Ray Dalio said, “Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn't mind losing about 80% of.”
“That is what Bitcoin looks like to this non-expert. I am eager to be corrected and learn more. On the other hand, believe me when I tell you that I and my colleagues at Bridgewater are intently focusing on alternative storehold of wealth assets, and Bitcoin won't escape our scrutiny,” Dalio added.
Dalio, who previously outlined some problems with Bitcoin during a November interview with Yahoo Finance, described the cryptocurrency as “one hell of an invention.”
“To have invented a new type of money via a system that is programmed into a computer and that has worked for around 10 years and is rapidly gaining popularity as both a type of money and a storehold of wealth is an amazing accomplishment,” Dalio wrote.
He added that the creators and supporters behind “the dream of making this new kind of money a reality have done a fabulous job of sustaining that dream and moving Bitcoin (by which I mean it and its analogous competitors) into being an alternative gold-like asset.”
The billionaire investor noted that there aren't many alternative gold-like assets currently, and in a world of rising debt and aggressive money printing by central banks that there will be a growing need for assets that can be privately held. He suggests “the possibility that Bitcoin and its competitors can fill that growing need.”
He also noted that Bitcoin has appeared to have "succeeded in crossing the line from being a highly speculative idea that could well not be around in short order to probably being around and probably having some value in the future.” However, the investor did point out some remaining questions, including, "What can it realistically be used for and what amount of demand will it have?”
While Bitcoin has a fixed total supply, with a hard-coded total supply of 21 million bitcoins, Dalio believes that new entrants and competition could impact the price and that Bitcoin will likely be replaced.
“In fact, I assume the better ones will come along and displace this one because that is the way the evolution of everything works — i.e., new ways of doing things and new things always have and always will replace old ways of doing things and old things,” Dalio added.
What's more, while Bitcoin has “stood the test of 10 years time,” Dalio also expressed concern that Bitcoin is “not protected against cyber risks to my satisfaction. I look forward to being corrected.” Dalio cast doubt that Bitcoin's privacy could be protected. He also made a point that if the government wanted to ban its use, demand would plummet.
“Rather than it being far-fetched that the government would invade the privacy and/or prevent the use of Bitcoin (and its competitors) it seems to me that the more successful it is the more likely these possibilities would be,” he added.
Following Dalio's commentary, Bridgewater's Director of Investment Research Rebecca Patterson and her team noted that Bitcoin “has merit.”
“[Similar] to gold, it cannot be devalued by central bank printing and its total supply is limited. Further, it is easily portable and exchangeable globally, especially for individuals. It also has the potential to provide diversification, though to date this is more theoretical than realized,” Patterson wrote.
The Bridgewater team also pointed to the challenges facing Bitcoin and other cryptocurrencies, including volatility, regulatory uncertainty, cyber risk, liquidity, and immature infrastructure.
The full 14-page note can be found here.
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.