Bitcoin is unlikely to become the global reserve currency! Dalio: Will eventually be cracked by quantum computers

The founder of the world’s largest hedge fund, Bridgewater’s Ray Dalio, offers a conservative view on Bitcoin’s future role. Although he has held a small amount of Bitcoin for the long term, he believes that structural flaws make it difficult for Bitcoin to become a globally adopted reserve currency by governments worldwide. Dalio explicitly states that Bitcoin still faces insurmountable obstacles to becoming a global reserve asset, with “traceability” and the “threat of quantum computing” being the most critical.

Traceability Becomes a Fatal Flaw for National-Level Applications

(Source: CNBC)

In an interview with CNBC, Dalio clearly pointed out that for Bitcoin to ascend to a global reserve asset, it must overcome significant hurdles, with “traceability” and the “threat of quantum computing” being the most critical. He emphasizes that governments would not be willing to adopt a financial product that openly and permanently records transaction histories. This viewpoint touches on the fundamental contradiction of Bitcoin as a national reserve asset.

Transparency on the Bitcoin blockchain is a core feature of its technical design. Every transaction is permanently recorded on a public ledger, and anyone can query the transaction history and balances of any address. This transparency is necessary in decentralized systems because it allows the entire network to verify transaction validity and prevent double spending. However, this transparency is a major disadvantage for national-level financial operations.

Governments engaged in international trade, foreign exchange reserve management, and geopolitical transactions require confidentiality. If a country’s foreign exchange operations are fully transparent, adversary nations can monitor buying and selling activity in real time, gaining insights into economic strategies and vulnerabilities. For example, if China uses Bitcoin as a reserve currency, U.S. intelligence agencies can track each reserve adjustment to understand economic pressures and policy intentions. This information asymmetry is deadly in international diplomacy.

Dalio, in an interview at the end of July, stated that central banks are unlikely to adopt cryptocurrencies as reserve currencies because “everyone can see and observe what transactions are being made, so there’s no privacy.” This view is widely shared among international financial experts. Although privacy coins like Monero offer better anonymity, their liquidity and acceptance are far inferior to Bitcoin, and they may face stricter regulatory crackdowns.

For individual investors and some institutions, Bitcoin’s traceability might not be a big issue and could even be an advantage (e.g., for auditing and compliance). However, for sovereign nations seeking strategic flexibility and informational secrecy, this transparency makes Bitcoin difficult to serve as a primary reserve asset. That’s why, despite multiple countries exploring or establishing Bitcoin reserves, the scale remains relatively small, serving more symbolic than strategic purposes.

Threat of Quantum Computing to Bitcoin Encryption

Additionally, as quantum computing advances, Bitcoin’s cryptographic foundations could face risks. Dalio states, “Under quantum computing, it could theoretically be controlled or hacked.” These potential security vulnerabilities and the lack of privacy features limit Bitcoin’s application at the national level. This concern aligns with recent warnings from Ethereum founder Vitalik Buterin.

The threat of quantum computing to Bitcoin mainly targets elliptic curve cryptography. Bitcoin uses ECDSA (Elliptic Curve Digital Signature Algorithm) to generate key pairs and verify transactions. Its security relies on a mathematical problem: given a public key, finding the corresponding private key would take billions of years on traditional computers. However, quantum computers employing Shor’s algorithm could solve this problem within hours.

If quantum computers reach sufficient power in the coming years, any Bitcoin addresses exposed through public keys could be cracked. It is estimated that approximately 5 million Bitcoins (about 25% of the total supply) stored in addresses with exposed public keys are at risk of quantum attack. Although the Bitcoin community is researching quantum-resistant upgrades, the technical complexity and social consensus challenges of such upgrades are substantial.

For professional investors like Dalio, the quantum threat is not an immediate concern but a long-term strategic risk. If Bitcoin is to truly become a global reserve currency, it must withstand technological advances over decades or even centuries. The uncertainty surrounding quantum computing raises questions about Bitcoin’s long-term security, which is unacceptable for reserve assets that need stability across generations.

In contrast, gold’s value does not depend on any cryptography or technology system; its physical nature ensures that no matter how technology evolves, gold’s store of value remains unaffected. This “technological independence” is a core advantage of gold as the ultimate reserve asset and a key reason why Dalio prefers gold.

Dalio Holds 1% in Bitcoin but Prefers Gold

Although skeptical about Bitcoin as a national reserve currency, Dalio has allocated about 1% of his portfolio to Bitcoin and has held it for a long time. This seemingly contradictory behavior reflects a pragmatic approach by professional investors: recognizing Bitcoin’s investment value but not believing it can replace traditional reserve assets.

A 1% allocation among conservative investors like Dalio is already considered significant. Given that Bridgewater manages over $100 billion, this means a Bitcoin exposure of over $1 billion. This scale indicates Dalio does not entirely dismiss Bitcoin but views it as a small hedge within his portfolio.

However, he favors gold even more. In late July, Dalio called on investors to allocate 15% of their assets to “hard assets” like Bitcoin and gold, emphasizing that “gold is an asset you can hold physically, without relying on others to provide it.” This highlights the fundamental difference between Bitcoin and gold: gold is a tangible asset that can be held outright, whereas Bitcoin relies on blockchain networks, miners, node operators, and the developer community.

In his suggested 15% allocation to hard assets, Dalio did not specify the exact ratio between Bitcoin and gold, but his preference for gold suggests perhaps around 10-12% in gold and 3-5% in Bitcoin. This allocation reflects his assessment of their different risk-return profiles: gold is more stable with limited upside potential, while Bitcoin is more volatile but may offer outsized returns.

Dalio Warns U.S. Stock Bubble Has Reached 80% Danger Zone

On the macroeconomic front, Dalio states that, based on a bubble indicator tracing back to 1900 data, the U.S. economy is now in a danger zone similar to just before the 1929 Great Depression and the 2000 dot-com bubble. Dalio analyzes multiple indicators, including leverage ratios, money supply, and wealth concentration, to assess market fragility, and notes that the U.S. bubble has reached 80%: “It’s clear we’re in a bubble, but it hasn’t burst yet.”

This 80% bubble indicator is highly alarming. Dalio’s bubble assessment model considers multiple dimensions, including deviations of asset prices from historical averages, market leverage, influx of new investors, and extreme market sentiment. When these indicators reach 80%, it suggests the market is in an extremely dangerous zone, with the potential for a sharp correction at any time.

The comparisons to 1929 and 2000 provide historical reference points. After the 1929 crash, the U.S. entered a decade-long Great Depression, with the stock market plunging 89% from its high. After the 2000 dot-com bubble burst, the Nasdaq fell 78%, and many tech companies went bankrupt. If the current bubble bursts similarly, it would be catastrophic for all risk assets, including Bitcoin.

However, Dalio emphasizes that “the bubble has not yet burst,” implying we are still in the expansion phase. During this phase, asset prices could continue rising, offering profit opportunities for investors. But risks are also accumulating, and a trigger could lead to a rapid collapse. For Bitcoin investors, this environment demands extreme caution: avoiding complete exit due to bubble warnings (which might cause missing final gains) or over-leveraging (which could lead to severe losses during a crash).

Dalio recommends allocating 15% of assets into hard assets like Bitcoin and gold as a hedge against this bubble environment. When traditional assets like stocks and bonds are in a bubble state, hard assets offer some protection. Historically, gold has preserved or increased in value during financial crises, and Bitcoin, dubbed “digital gold,” has shown resilience during the 2020 pandemic and the 2022 inflation peaks.

Regarding Bitcoin’s potential as a global reserve currency, Dalio’s skeptical view reflects the mainstream perspective of traditional financial elites. Traceability and quantum threats are genuine challenges Bitcoin faces, but Bitcoin supporters argue that these issues can be addressed with technological solutions. Privacy layers can be implemented via Lightning Network or other second-layer solutions, and quantum threats can be mitigated through upgrading cryptographic algorithms. However, these solutions require global consensus and technological breakthroughs, with uncertain timelines and feasibility. As a pragmatic investor, Dalio recognizes Bitcoin’s investment value while remaining doubtful about its prospects as a global reserve currency, a stance that balances realism and caution.