Ray Dalio, once one of the most prominent crypto critics, has made a new case for owning gold and bitcoin as he believes the United States is approaching a dangerous point in its debt cycle.
The founder of Bridgewater Associates noted that investors should reduce their exposure to bonds, allocate 10%-15% of their holdings to gold, and hold ‘a bit of bitcoin’ as protection against what could eventually become a full-blown US debt crisis.
Gold and BTC Over Bonds
As reported by CNBC, the billionaire investor’s arguments center around the rapidly deteriorating US fiscal position as the federal government is expected to collect approximately $5.5 trillion in revenue this year while spending is anticipated to be at roughly $7.5 trillion. In other words, this presents a shortfall of around $2 trillion.
At the same time, $10 trillion of government debt needs to be refinanced, and interest expenses alone are approaching $1 trillion. Without a major change in direction, Dalio estimated that a US debt crisis could arrive in “three years, give or take two.”
His solution is rather controversial to some, as he proposed to reduce the federal deficit from roughly 6% of GDP to 3% through a combination of spending cuts, increased tax revenue, and lower borrowing costs.
Individual investors, though, should not rely solely on the government’s actions and should prepare for the consequences of years of negligence. His recommendation is to diversify across financially strong countries and asset classes, while reducing their exposure to debt securities such as bonds. Instead, investors should go for gold and BTC, albeit to a lesser extent, he said.
The Timing
The comments arrive during a rather impressive week for both assets, as BTC surged from $64,000 to almost $80,000, while gold rebounded from $4,000 to $4,600 per ounce. These moves came after US Treasury Secretary Scott Bessent announced plans to substantially increase buybacks of long-dated government bonds.
The announcement pushed Treasury yields lower and weakened the dollar almost immediately. BTC’s rally only intensified the following day, producing its strongest performance in more than three years.
Meanwhile, US government debt surpassed $40 trillion this week, while longer-term Treasury yields recently climbed to their highest levels in years.
If investors become increasingly reluctant to finance enormous government deficits, Treasury yields may have to rise further to attract buyers. In contrast, policymakers could eventually respond with monetary intervention that risks weakening the dollar further and fueling inflation.
Both outcomes strengthen Dalio’s argument for assets that cannot simply be issued by governments.
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