Prominent investor and entrepreneur Ray Dalio recently posted on Twitter about his reasons for being skeptical of bitcoin as a currency. His objections are understandable given bitcoin’s novelty. I also don’t entirely disagree with some of his points! However there is more to be said in favor of bitcoin than Ray’s tweets suggest, so I thought I’d respond to him point by point from the perspective of a long-time Bitcoiner in the interest of building a shared understanding of this exciting technology.

Here are each of Ray Dalio’s objections and my response:

1) Bitcoin is not very good as a medium of exchange because you can [sic] buy much with it (I presume that’s because it’s too volatile for most merchants to use, but correct me if I’m wrong)

Ray might be surprised to learn just how many things can be bought with bitcoin. The bitcoin.org website has a landing page dedicated to spending bitcoin, which takes visitors down a seemingly endless rabbit hole of places to spend bitcoin. In addition to the hundreds of thousands of businesses that accept bitcoin directly, by using a service like Bitrefill it is possible to buy gift cards with bitcoin for almost any major retailer you can think of. It is easier to “live on bitcoin” today than ever before.

That said, until most people can pay their rent/mortgage and utility bills with bitcoin, spending bitcoin will probably feel more gimmicky than revolutionary. And given the IRS’s onerous tax treatment of bitcoin, it’s unlikely that using bitcoin for retail purchases will take off in the United States any time soon. Bitcoiners still have much work to do to make bitcoin attractive as a currency for daily spending.

2) it’s not very good as a store-hold of wealth because it’s volatility is great and has little correlation with the prices of what I need to buy so owning it doesn’t protect my buying power

Bitcoin is more volatile than the leading alternative currency, the U.S. Dollar. That is true. But on a long enough time scale (months-years) bitcoin has proven to be much better at protecting purchasing power than dollars. Compare the dollar’s purchasing power over its lifetime with bitcoin’s purchasing power over its own lifetime:

(Note that the dollar chart is a linear chart while the bitcoin chart is a log chart.)

As of the time of writing this post, if you bought bitcoin at any point other than a few days in December 2017 then bitcoin either maintained or increased its purchasing power (and likely by a significant amount) relative to the dollar.

Given bitcoin’s day-to-day volatility, at this point in its evolution it is not appropriate to treat exactly the same as dollars, where you get paid your income and then slowly spend throughout the month. If you are lucky enough to get paid in bitcoin, you will probably immediately sell enough bitcoin for dollars (or equivalent) to cover living expenses, since dollars will be relatively stable in value until your next paycheck and you don’t want to gamble with rent and grocery money. Then you can put the rest of the bitcoin into your long-term savings account, where the daily volatility either doesn’t matter much or, if bitcoin continues to do well, will actually benefit you.

3) if it becomes successful enough to compete and be threatening enough to currencies that governments control, the governments will outlaw it and make it too dangerous to use.

I think this is unlikely to happen in any first-world “liberal democracy” (or enlightened autocracy). First, it may not actually be legally possible to outlaw bitcoin in places with strong free speech protections, like the United States, for the same reason that attempts to ban end-to-end encryption have failed: it is unconstitutional to ban people from publishing software and doing math on their computers. Second, bitcoin is starting to make friends in high places. There are an increasing number of elected officials who are open about owning bitcoin and making supporting bitcoin a part of their platform. This provides bitcoin a degree of protection against political attacks.

That’s not to say it’s all smooth sailing on the political waters for bitcoin. The governments in China, Russia, and India for example have not been too friendly to bitcoin users at various points in time. Ultimately, however, the intolerance of unfriendly governments only drives innovation to more friendly jurisdictions, just as is the case with the internet itself. Given how much money is potentially at stake, this is a case where being on the wrong side of history could end up being a very expensive mistake. I believe smart governments will come around and support bitcoin if they don’t already.

For those governments that are foolish enough to ban bitcoin, I suspect such bans will be about as successful as bans on other popular products (such as illegal drugs). That is to say, not very successful at all. Because bitcoin is digital, it is easy to transport and conceal. And if bitcoin really is a threat to the government’s currency then that means bitcoin will probably be highly valuable and desirable to hold in place of the government’s currency, making it even more likely that a ban fails in practice.

In short, I am on the one hand optimistic that most governments will not ban bitcoin. On the other hand, I’m also optimistic that if a government does ban bitcoin that the ban will be largely ineffective in the long run and maybe even hasten the failing government’s demise.

Also, unlike gold which is the third highest reserve assets that central banks own, I can’t imagine central banks, big Institutional investors, businesses or multinational companies using it.

While all of this is happening much sooner than even I expected as a bright-eyed Bitcoiner back when I bought my first satoshis, there actually are examples of bitcoin being used in a significant way in each of the categories Ray mentions in the last tweet on his thread.

• In Iran, bitcoin miners are reportedly required to sell a portion of the bitcoin they mine directly to the central bank.
• There is ample evidence of big institutional investors ($1 billion+ AUM) investing in bitcoin, either directly or by proxy.
• There is also a growing list of businesses that publicly advertise holding bitcoin in their corporate treasuries.
• And while they aren’t using bitcoin as a currency per se, Microsoft (a multinational company) is now using bitcoin as a trust anchor for their digital identity system.

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I understand a lot of the skepticism about bitcoin, especially from people like Ray Dalio who mainly look at bitcoin through the lens of currency. While bitcoin can be used as a currency, and is used as a currency by a growing number of people, for first-world citizens with relatively stable currencies, that is, in my humble opinion, not bitcoin’s best use case except in limited circumstances.

I believe bitcoin is, for most people, at this stage of its development, first and foremost a savings technology. It’s an asset you use to park cash so it isn’t eaten away by inflation, without having to give your money to debt-addicted governments or fee-hungry fund managers (no offense, Ray). Bitcoin serves a similar role as gold in that regard, but with a lot more upside potential since bitcoin is still so new and has a long way to go to reach a similar level of adoption as gold. Viewed this way bitcoin is also like investing in an early stage tech company, except this is an early stage money with millions of happy savers and excited supporters around the world.

Bitcoin is like gold for the digital age, a kind of “Gold 2.0”, an apolitical, programmable, scarce, divisible asset that is easy to store and transport anywhere in the world as fast as email. It is an electronic form of money not dependent on any one company or government — a true money of the people. Notably, Bitcoin is early. The technology is immature, the markets are barely finding their legs, most of the entrepreneurs are new to this whole “building an industry” thing. But there really is something special here that has the potential to grow into something much bigger, similar to the early days of personal computing or the Web. I invite Ray Dalio and anyone who’s still skeptical to take a second look, and if you still have questions, my door is always open.

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