“Paper money eventually returns to its intrinsic value – zero” — Voltaire

The founder of the world’s largest hedge fund, Bridgewater Associates, Ray Dalio recently remarkably voiced his opinion that regulators would ultimately take control of Bitcoin if the cryptocurrency gains mainstream success. “I think at the end of the day if it’s really successful, they will kill it and they will try to kill it. And I think they will kill it because they have ways of killing it,” he said.

Ray Dalio has been quite vocal over the course of recent months returning to the spotlight after a tremendously successful interview from Yahoo.Finance concerning the limited Fed’s leeway to act, and ever since gave his opinion on a variety of topics including China, – in particular Evergrande’s saga, virtually clashing with his overt opponent on the issue, George Soros. Ray still believes Bitcoin makes a good alternative to cash. However, the new reality is that U.S. financial regulators have stepped up their oversight of the cryptocurrencies and crypto exchanges as these markets continued to grow and produce daily market headline news thereby grabbing more and more mainstream’s attention. Securities and Exchange Commission Chairman Gary Gensler said recently that Wall Street’s top regulator is working overtime to create a set of rules to protect investors through better regulation of the thousands of new digital assets and coins.

Also, quite peculiarly, Dalio said Bitcoin doesn’t have intrinsic value, meaning the asset lacks fundamental and objective worth. “There are so many things in a historical perspective that didn’t have intrinsic value and had perceived value. And then it went hot and it became cold. It could be either way. You just have to know what it is. It could be tulips in Holland,” Dalio said. Wait a minute! But what “intrinsic value” does Ray Dalio refer to concerning Bitcoin given the fact that the greatest “intrinsic value” of all fiat currencies is simply the public trust in them? In other words, no fiat money has intrinsic value nor does the use-value by definition. The sad truth is that nothing except hard assets have intrinsic values nowadays. Cryptos would have been in a much weaker position were the modern currencies pegged to gold or collateralized some other way! So, once again, we must thank the U.S. 37th President Richard Nixon and the great TBTF banks’ bailout team of 2008, that Bitcoin now became the highest value-carrying currency among the long list of zero intrinsic value implying fiat currencies! So, bottom line is that Bitcoin does have intrinsic value – the one which is greater than that of fiat currencies.

By the way, according to JPMorgan, Bitcoin does have intrinsic value:

Still, the billionaire investor said Bitcoin makes a good alternative to cash, and he owns a smaller percentage of the digital token compared with his gold exposure in the portfolio. “I think it’s worth considering all the alternatives to cash and all the alternatives to the other financial assets. Bitcoin is a possibility. I have a certain amount of money in bitcoin,” Dalio said. “It’s an amazing accomplishment to have brought it from where that programming occurred to where it is through the test of time.”

The success of Bitcoin owes a great deal to a lack of maneuver by modern central banks. Their abilities to make interest rates real rather than near-zero as they have been for a long time are severely limited by rising government debt liabilities (AKA debt interest payments). Today’s classic monetary policies are a gearbox with just one drive gear working, though with a still-functioning brake system. Who wants to be a passenger in a car with just one drive gear and a brake? No, seriously?

Given rising deficits of government budgets across the globe, they simply cannot afford to increase their debt servicing outlays. It makes conservative investments more and more meaningless over time, as raging inflation eventually eats into all those meager profits made by investing in the indebted fiat currencies. So, argument number two for a highly esteemed successful investor Ray Dalio: unlike fiat currencies, cryptos don’t carry any underlying debts, and it’s beautiful!

Tom Hank’s Cast Away character said dollars were worthless in a desert island. We use plastic cards for our daily shoppings rather than measurable and countable hard cash. These examples give a better idea that a currency is just a commonly acceptable medium for the exchange of goods and services among people – something that we call a legal tender. What is most important is not the currency itself, but the surrounding infrastructure. If by the time the regulators “will kill it and they will try to kill it” many global businesses and services will participate in a ramified, extended, geographically boundless network accepting crypto payments, then the “killing job” must aim at the network rather than Bitcoin. Okay, assume they “kill” Bitcoin, but what about Ether, Solana, Ripple, Doge, and hundreds of other liquid coins? Will they succeed at killing all of them at once given the fact that the network still accepts any of them?

I once wrote that all kinds of restrictions eventually result in growing premiums, because the less something available the more people desire to own and stockpile it. Thus, many western European countries implemented exchange controls in the years immediately following World War II. The measures were gradually phased out, as the post-war economies steadily strengthened. Across my examples, Ghana’s exchange restrictions during the 1970s and early 1980s caused its black market premium to climb above 4000%. In China, the black market premium for gold happened to surge in times of famine and social unrests, such as during the Collectivisation and the Great Leap Forward, causing gold to skyrocket in local markets.

Many world’s outright prohibitions of cryptocurrencies mainly happened around 2017 and 2018, coinciding with Bitcoin’s previous bull run. As central banks and governments noticed the surge of common interest in cryptocurrencies, ignoring this growing market was no longer an option for them. Although there is no direct evidence that those actions contributed to the followed profound rise in the crypto assets, one thing remains obvious: they weren’t able to undermine their rising popularity.

Unlike Ray Dalio and many other crypto skeptics, many other influential people away from the crypto-related business like Jake Dorsey and Elon Musk, as well as top-ranked officials, don’t focus on the inherent “conflict of interest” between blockchain crypto and the classic fiat. For example, Senator Tom Carper (D-Del.) in November 2013 said “Virtual currencies are not going away. Their emergence has potentially far-reaching implications for the federal government and society as a whole.” Recently Pat Toomey, the most senior Republican on the U.S. Senate Banking Committee, has requested legislative proposals to support cryptocurrency innovation, blockchain and protect crypto investors. “Rather than trying to ignore or suppress cryptocurrency and related technologies, regulators and legislators alike need to recognize that open, public networks are here to stay. Our laws and regulations must adapt to these developments,” said Senator Toomey.