Dalio warns of AI bubbles: 1% positions in Bitcoin, gold is more resistant to quantum threats

According to WooFunai, the founder of Bridgewater Fund, Rui Dalio, based on his big cycle theory, clearly characterized the current artificial intelligence boom as a significantly destructive economic bubble, and warned that the global order is in an alternating period of recession driven by debt, the gap between the rich and the poor, and geographical turmoil.

This judgment is not an isolated catharsis of market sentiment, but rather a systemic risk warning based on a profound review of historical macrocycles. Dalio believes that although the revolutionary potential of AI technology is undeniable, its valuation logic has seriously deviated from fundamentals, compounded the government's fiscal deficit with the intensification of internal social conflicts, causing traditional powers such as Britain and the US to face serious challenges. In this macro context, risk exposure based solely on cash or a single stock has expanded dramatically, and investors must build defensive hedging strategies through diversified assets such as gold to cope with possible major economic turbulence. This is not only a technical adjustment in asset allocation, but also a key adaptation mechanism for individuals and countries to survive and develop in technological innovation and social change.

Notably, Dalio's views directly respond to the current market's general anxiety about the bursting of the AI bubble and its ripple effects. Its core logic is to reveal the weak link between book wealth and actual purchasing power, as well as the structural tension between traditional financial systems and emerging technology assets in the process of global power restructuring.

Ray Dalio's authoritative endorsement stems from his extraordinary career trajectory and institutional achievements. The Qiaoshui Fund, which he founded, has gradually grown from a small point of being located in a two-bedroom apartment to a global macro-investment giant with assets under management of about 150 billion US dollars.

This rise process not only saw Dalio's accurate prediction of the 2008 financial crisis, but also established his position in the global financial world. In addition to his actual performance, Dalio has also systematized his thoughts on the rules of economic operation through works such as “Principles,” “Principles for Coping with a Changing World Order,” and “How Countries Go Bankrupt.” Recently, he had an in-depth conversation with host Steven Bartlett on the “TheDiaryoFaceo” podcast, which PanNews has sorted out in detail. In the interview, Dalio emphasized that as a global macro investor, he observed that behind the current market's excitement about AI, there are deep structural contradictions hidden. China has replaced the US as most countries' largest trading partner, marking a fundamental change in the world order.

At the same time, the huge gap between the rich and the poor and the shortage of government funding are becoming increasingly prominent. When the economy is in recession, internal social conflicts tend to intensify, and people tend to attack each other rather than cooperate. The complexity of this macro background requires investors to go beyond a single dimension of technical analysis and examine asset values from a broader historical, political and economic perspective.

Regarding the mechanism of the AI bubble, Dalio is highly consistent with investor Jeremy Grantham. He believes that the current market is facing what is likely to be the biggest investment bubble in US history, and its peak may soon arrive. The essence of the bubble was a disconnect between a sharp rise in prices and the good performance of the company, and the subsequent bursting of the bubble would have a profound impact on the economy, as shown by the Great Depression of 1929 or the Internet bubble of 2000. When revolutionary new technology appears, people often view it as a miracle, ignoring the price of the asset itself and investing instead through borrowing. Dalio explained this risk through a specific case: let's say an investor spends $100 to buy shares of an AI company and lends $50 to the bank using net book value. If stocks fall to $25 due to economic changes such as war, investors still owe banks $50 and are forced to sell assets to repay debts, which in turn triggers an overall drop in prices, lower consumption, and economic recession.

Furthermore, there is huge uncertainty about the valuation logic of AI companies. There may be situations where they only spend 50 million US dollars but are valued as high as 1 billion US dollars. This kind of book wealth is not real money. When market fervor triggers inflation, central banks raise interest rates to curb inflation, and debtors need to raise more capital to repay.

At the same time, the increase in stock issuance has led to oversupply. When the cost of debt exceeds the return on equity investment, and people are in urgent need of cash, the bubble will inevitably burst. The annual inflation rate of 3.5% to 4% further erodes the value of cash, making returns dependent on short-term interest rates insignificant.

The big cycle theory proposed by Dalio provides a macroscopic framework for understanding the current situation. This is a cycle that lasts an average of about 80 years. The last time a new cycle started was in 1945. The cycle includes three simultaneous dynamics: the first is internal political conflict caused by the widening gap between the rich and the poor, such as rivalry between the left and right; second, the government's huge fiscal deficit and inability to pay bills; and finally, geopolitical changes, that is, the intensification of inter-country conflicts. If people don't understand this cycle, they can only see isolated news and are unable to link events. Currently, the global order is in a phase of recession with alternating forces, and traditional countries such as the United Kingdom and the United States are facing serious challenges. China's role in geopolitics is becoming increasingly important, and its rise contrasts with America's dominance.

This structural change not only affected the pattern of international trade, but also profoundly changed global capital flows and political alliances. Dalio emphasized that understanding these long-term trends is critical to predicting future economic trends, as history often repeats itself in similar ways, although the specific manifestations may vary. Ignoring the law of large cycles may cause investors to suffer huge losses when the bubble bursts and miss out on opportunities when the economy recovers.

According to data compiled by WooFunai, in the face of an uncertain future, Dalio provides ordinary people with specific wealth coping strategies, the core of which is diversified allocation and human capital investment. For a 30-year-old young man with only $100 of disposable income per month, the most important principle is to avoid keeping all of his money in cash, as inflation will eat away at its value for a long time. Even if short-term interest rates are obtained, the actual return is still poor, given the 3.5% to 4% inflation rate and taxes. Therefore, it is necessary to build a diversified investment portfolio that includes stocks, gold, bonds, real estate, etc. When stocks or bonds fall, assets such as gold often perform well, reducing risk without reducing overall returns. For young people who lack assets, the only asset is themselves. Dalio suggested that efforts should be made to improve skills in exchange for high income and combine work with passion, but the “money” element must not be overlooked.

This means that while pursuing career satisfaction, attention must be paid to financial planning to ensure economic independence in the midst of technological change and social transformation. Diversification is not only a diversification of asset classes, but also a balance of income sources and risk exposure, aiming to enhance individual resilience in the face of economic fluctuations.

In the field of crypto assets, Dalio holds a specific view, and about 1% of his portfolio is Bitcoin. He believes that Bitcoin is a type of hard currency that cannot be printed at will, and has unique value properties. However, he personally favors physical gold because gold cannot be broken through technical means and is the only financial asset that is not part of anyone else's debt.

Currently, gold is still the second largest reserve currency held by major central banks, which provides it with solid institutional support. In contrast, digital currencies such as Bitcoin face multiple risks, including possible security threats from quantum computing, and the possibility of government surveillance and taxation. When the government doesn't want an asset, it has the power to take any action, which challenges Bitcoin's transaction privacy and control. Due to these considerations, central banks will not hold large amounts of Bitcoin. Dalio's position reflects his comprehensive assessment of asset safety, degree of decentralization, and institutional acceptance. Although Bitcoin has potential, under the current technical environment and regulatory framework, it has a high risk premium and is suitable as a niche allocation in a diversified portfolio rather than a core position. Gold, on the other hand, has become a more reliable safe-haven asset due to its historical stability, physical properties, and central bank reserve position.

The impact of AI on work and social structures is another focus of Dalio's attention. The mainstream view in Silicon Valley is that AI will create new jobs, just like after tractors and factories replaced workers in the industrial revolution, humans can always find new ways. Dalio is critical of this, believing that Silicon Valley, as a technology producer and vested interest holder, is unwilling to acknowledge negative consequences. The industrial revolution replaced human physical strength with machines, and AI is replacing human thinking and reasoning ability at a higher level. In this process, the biggest beneficiaries are “capitalists” who can use capital to replace workers, leading to a decline in the share of corporate income flowing to workers, and the gap between rich and poor has further widened. When the human body and mind are replaced, the only remaining emotions and intuition become unique strengths. In the foreseeable future, people who can use superior human intelligence and partner with AI will be at the cutting edge.

Furthermore, with regard to the controversy over levying a “wealth tax” on the rich, Dalio believes this is extremely difficult to operate. The rich need to sell their wealth to pay taxes, which could be a trigger to burst the bubble. Wealth taxes will also reduce capital expenditure to create productivity, and society will face problems if consumption is carried out only through wealth transfer without increasing productivity. If enforced by the government, it may trigger an outflow of capital from the wealthy, leading to retroactive taxation or strict capital controls. Britain is currently mired in excessive debt, low productivity, and internal political conflict, and has become a typical negative textbook. Addressing these issues requires strong 'centrist' forces to cooperate between the two parties, share pain, and make difficult reforms to increase the productivity of most people.

In terms of a geopolitical outlook, Dalio points out that changes in the world order have occurred in a cycle over the past 500 years. Before World War I and World War II connected the world to form 'one world', the world was divided into different regions, each with powerful countries. However, under the 'one world' system, differences are usually resolved through the Cold War or Hot War, where power determines dominance rather than a rules-based order. The most likely and beneficial outcome for the future is for the world to become more regionalized. China is deeply influenced by Confucianism. Its basic goal is to be competitive and not to be cut off by the world, rather than to occupy and control other countries.

If China and the US remain strong and avoid large-scale destructive wars, the world may be divided into separate development sectors such as the American region, China, and the Asia-Pacific region. Currently, the US is mired in a deep conflict with Iran, revealing its weaknesses. The Asian consensus believes that the US does not want to go to war because the public is worried about rising oil prices and human casualties and hopes for a quick resolution, but long-term occupation and control cannot be achieved with this. Asian countries are aware that the US may retreat; instead, its military base becomes a debt. This is similar to the Suez Canal crisis when the British Empire declined; power is shifting. People are aware that America's economic and military strength in the past, where only a hint was needed, is being weakened. Getting involved in the Iran conflict was a huge mistake, exposing America's vulnerability to the full.

This geopolitical dynamic not only affects international relations, but also profoundly shapes global capital flows and resource allocation. Investors need to pay close attention to regionalization trends and their potential impact on asset prices.