Ray Dalio Softened His Stance On Crypto, and Why Everything Is Money Illusion

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1 year ago

Ray Dalio, a pretty famous BTC skeptic came out to say that BTC is here to stay, and admitted owning some BTC and ETH. The fiat fiasco is getting worse and a lot of older guys are admitting that there could actually be something in BTC.

Ray Dalio says that it’s very impressive of BTC to have survived over an entire decade. He also suggests that several governments are likely to go ahead and ban BTC as it becomes more attractive and threatens the establishment’s control of the monetary system. Ray Dalio generally views BTC as a preferable alternative to cash, in a highly inflationary environment as the value of cash depreciates.

The Fed has printed 40% of all the money in the history of the republic. It’s not exactly that BTC is getting better, it’s that the American dollar is getting worse at an accelerating pace.

Crypto is starting to become a little politicized, especially in the US. Looks like the GOP is turning out to be in favor of BTC and crypto innovation in the US. Democrats seem to lean more in favor of crypto regulation than Republicans.

Republicans, on the other hand, have historically been in favor of anything that looks like financial innovation. Elizabeth Warren insinuated that stablecoins are the sketchiest part of the whole crypto ecosystem, yet it’s the most legitimate part of the entire system.

The fact that Elizabeth Warren, the bankers’ friend, complains about stablecoins and crypto just goes on to prove just how good they are. Opinions in crypto are also split along generational lines, even within the parties. Younger Democrats are in favor of any alternatives to traditional banks, while Republicans have always generally not been in favor of regulation as a whole.

Fintech has not quite submitted itself to tech; the companies are still running on old banking rails. No technological innovation. The only viable tech is if we take things on-chain.

The amazing thing about BTC and crypto is that you don’t need pipelines or transmission wires, to take this nebulous energy e.g electricity, using an algorithm and compressing it into this immutable transferrable digital currency.

The 2nd biggest donor to the Democratic Party was the SPF so it seems a little weird that the crypto issue has turned bipartisan in the political scene. It was always predetermined though, that crypto would become big enough to be politicized, with the underlying message getting lost along the way in some form.

Stock Buybacks vs Corporate insider Sales

Q3 of 2021 saw $234.5 Billion worth of stock buybacks, surpassing the previous record of $223 Billion in Q4 2018. At the same time, there’s a record $69 Billion worth of stock being sold by corporate insiders.

The corporate tax cuts engineered by the previous administration were basically a quid pro quo, at a time of massive income inequality. Instead of reinvesting into their businesses, these companies have opted to boost their stocks’ value while simultaneously laying off their workers.

It was stealth QE; the deal was that the Trump administration would cut down the corporate tax for the top 0.1% tech companies, but in return, they had to buy back their stock. Insiders were also allowed to sell into the whole arrangement. The markets think that stocks are expensive right now.

Media houses have begun to co-opt their role by insinuating that inflation is somehow a good thing and can be beneficial for the little man. State capture of the media.

Consumer Net Worth Vs The S&P 500

These two are super correlated, and looking at net worth as a percentage of income continues to go up. Several charts now indicate that the bottom demographics are also going up in net worth, a statistic that flies in the face of the increasing income inequality narrative.

This is an illusory cap-weighting problem, however, because the S&P 500 for example does not really go up; it is only the top names that go up. Momentum strategies are fantastic in high-liquidity environments but value investors should be rotating from the highly overvalued sectors into the undervalued sectors.

A lot of crypto growth is also currently driven by this ‘money illusion’; the core money, BTC, and ETH go up, which leads to investments in other things e.g ICOs in 2017, now it’s NFTs, etc. It leads to investment in these things which start out scammy but end up legitimate.

All growth could be argued to be driven by money illusion in this sense. Much of growth comes from the creation of money (value) via innovation. Building new businesses, creating new consumer products, new technology, which then allows these banks to extend out more value to people than they hold via the fractional reserve system.

Crypto is this innovation cycle where we are making value bi-directional, which is a massive wealth-creation opportunity. So much of any growth is money illusion and debt, which makes us believe that we are wealthier than we are. The caveat is that without innovation, none of it matters. The fractional reserve system has to be supported by innovation and building to make sense.

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