Key Takeaways

Dalio said that increased liquidity from the Federal Reserve’s balance-sheet expansion could fuel ‘financial-asset inflation,’ a dynamic that typically lifts assets such as gold.

The comments come after former BitMEX CEO Arthur Hayes said the Fed’s quantitative easing could “reignite the Bitcoin bull market.”

CCN’s Valdrin Tahiri has tempered optimism with warnings that Bitcoin’s technical setup remains fragile.

Billionaire investor Ray Dalio warned that the Federal Reserve’s decision to halt quantitative tightening (QT) and resume balance-sheet expansion could lift gold and, by extension, other stores of value such as Bitcoin (BTC).

The implications for Bitcoin come as others in the industry highlight the potential for a renewed bull run.

The founder of Bridgewater Associates, one of the world’s largest hedge funds, argued that even though the Fed’s announcement was framed as a balance-sheet adjustment, it marks a meaningful shift toward easier policy.

“As chairman Powell said, ‘…at a certain point, you’ll want reserves to start gradually growing to keep up with the size of the banking system and the size of the economy,’” Dalio noted in a new essay on Wednesday.

“How much they will be adding will be important to watch,” he added.

He warned that if the Fed’s balance sheet starts expanding while interest rates are being cut and fiscal deficits remain large, “we will view that as a classic monetary and fiscal interaction of the Fed and the Treasury to monetize government debt.”

That scenario, Dalio wrote, “will look to me like the Fed is stimulating into a bubble.”

Dalio said that when the Federal Reserve or other central banks buy bonds, “it creates liquidity and pushes real interest rates down.”

What happens next, he explained, depends on where that liquidity flows.

“If it stays in financial assets, it bids up financial asset prices and lowers real yields so multiples expand, risk spreads compress, and gold rises,” he said, describing a cycle of “financial asset inflation.”

The billionaire drew a direct link between increased money creation and gold’s performance, arguing that inflation and currency debasement typically lift hard assets.

“All things being equal, the higher the inflation rate, the more gold will go up because most of inflation is due to the value and buying power of other currencies going down due to their increased supply, while there isn’t much increased supply of gold,” he wrote.

While Dalio’s focus was gold, he noted broader implications for other assets such as Bitcoin, which could respond similarly to increased liquidity and falling real yields.

The implications for Bitcoin come as others in the industry highlight the Fed’s changes as sparking the potential for a renewed bull run in Bitcoin.

Former BitMEX chief executive Arthur Hayes believes the same liquidity wave Dalio describes is already forming beneath the surface.

In a Nov. 3 essay, Hayes said the Fed’s “stealth quantitative easing” is quietly pumping dollars into the system.

“This phenomenon will reignite the Bitcoin bull market,” Hayes wrote. “The dollar money-market plumbing doesn’t lie.”

He argued that the Fed’s backstopping of Treasury issuance effectively injects new cash into markets.

“If the Fed’s balance sheet grows, that is dollar liquidity positive, and ultimately pumps the price of Bitcoin and other cryptos,” he said.

Hayes described the Fed’s Standing Repo Facility (SRF) as “the conduit through which printed money enters the global financial system,” calling it QE in all but name.

“QE is a dirty word,” he added. “Therefore, the Fed will do everything it can, with a straight face, to proclaim that its policy mix is not QE.”

Like Dalio, Hayes sees the Fed prioritizing market stability over inflation control.

But where Dalio warns of a “stimulus into a bubble,” Hayes views it as a spark for Bitcoin’s next cycle.

Still, not everyone is convinced the breakout is imminent.

Valdrin Tahiri, a market analyst at CCN, said Bitcoin’s recent price weakness points to an extended correction rather than a new surge.

“Bitcoin’s pattern is almost identical to that of the broader crypto market,” Tahiri wrote, noting that momentum indicators “have turned bearish and crossed into negative territory.”

Tahiri warned that Bitcoin “barely holds onto its final support area” near $106,000, and “a decisive close below this level could trigger a drop of more than 20 percent.”

“The total market cap’s breakdown below $3.55 trillion suggests the bullish cycle has topped,” he added. “If we get a decisive close below this support, that confirms a prolonged correction phase has begun.”

At the time of reporting, Bitcoin is trading just below $102,000.

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