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Bridgewater: Bitcoin can be digital gold

  • Bitcoin can be an alternative to gold if regulatory, volatility, and liquidity issues are addressed, says Bridgewater.
  • Regulation can increase liquidity and reduce volatility.
  • Bitcoin is a hedge against inflation.

Bitcoin has the potential to become an alternative to gold but only if certain caveats are met, says the world’s largest hedge fund.

Rebecca Patterson, the director of research at Bridgewater Associates said bitcoin could become “digital gold” if regulatory, volatility and liquidity issues are addressed.

Patterson was speaking on Bloomberg Surveillance where she was discussing Bridgewaters’ investment strategy and the unavoidable topic of bitcoin came up.

Digital gold

She said bitcoin can be compared with gold, but “wouldn’t call bitcoin an alternative currency.”

Bitcoin is currently enjoying mainstream attention as companies such as carmaker Tesla and business intelligence software firm Microstrategy pump billions into the cryptoasset. Both companies are publicly-traded.

Some companies such as Square Inc. have bet millions on bitcoin while others are investing in BTC via ETFs or similar products.

But Bridgewater has stayed away from bitcoin due to regulatory, volatility, and liquidity issues.

As institutional investors, we don’t know yet if it’s going to be digital gold, it may be over time, but I don’t think we can say that with confidence yet,” said Patterson, who joined the investment firm in December 2019, and before that, served as Bessemer Trust’s chief investment officer.

Last month, Bridgewater founder Ray Dalio said the hedge fund is scrutinizing bitcoin.

Hedge against inflation

Patterson added that bitcoin provides value to investors because it acts as a hedge against fiat currency.

“It is something that investors have been looking to as they worry about fiat currencies being devalued by all this central bank printing,” said Patterson.

Central banks have been printing more money to stimulate the economy that slumped due to the coronavirus pandemic.

Patterson explained that there is no single factor that determines if bitcoin has reached digital gold status, but there are a number of factors Bridgewater is looking for.

The firm needs to see lower volatility. She argued that bitcoin is not a store of wealth for institutional investors because it can fluctuate 10% based on a tweet. She went on to say that BTC is more volatile than Venezuela’s Bolivar.

The firm also needs to see greater liquidity.

Importance of Regulations

She said that regulatory certainty could bring about liquidity. Patterson does not see regulation as a bad thing for bitcoin.

“The more you get a real regulatory ecosystem developing around bitcoin and other currencies, the more other types of investors are going to be comfortable coming in, that’s going to bring the liquidity, that’s going to reduce the volatility.”

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