Ray Dalio, the founder of Bridgewater Associates, suggests allocating 15% of a portfolio to long-term assets like gold and bitcoin. On CNBC’s Master Investor Podcast, he expressed a preference for gold over bitcoin but left the choice open to individual judgement.
Dalio emphasised the precarious economic state of the U.S. due to its growing national debt. He foresaw the necessity for the U.S. government to issue nearly $12 trillion more in Treasuries next year just to manage this debt. He warned that not just the U.S., but all Western countries are trapped in a similar “debt doom loop”.
Positioning For Hard Assets
Given the warning about the devaluation of money, we believe derivative traders should position for rising hard asset prices. This means exploring long-dated call options on both gold and bitcoin to capitalize on potential upside with managed risk. We are treating this as a bet on increased volatility and a flight to scarcity.
His stated preference for gold is timely, as the metal has been trading near all-time highs, recently pushing past $2,300 an ounce. We can express this view through options on the SPDR Gold Shares (GLD) exchange-traded fund. Historically, gold has served as a reliable hedge during periods of significant government debt expansion, which is the exact scenario being described.
For the digital asset allocation, the market structure has been transformed by the recent approval of spot Bitcoin ETFs. BlackRock’s IBIT fund, for example, has seen over $17 billion in net inflows since its launch in January 2024, signaling strong institutional demand. We can gain leveraged exposure to this trend through CME Group’s bitcoin futures contracts.
Debt Doom Loop Strategy
The fundamental problem identified is the “debt doom loop,” with the U.S. national debt now sitting above $34.6 trillion. A direct way for us to trade this view is by anticipating higher interest rates through short positions in Treasury futures. Buying put options on a long-duration Treasury bond ETF like iShares 20+ Year Treasury Bond ETF (TLT) is another way to profit if bond prices fall as a result of the government issuing more debt.
These dire economic warnings suggest a period of significant market turbulence is ahead. We should therefore consider positioning for a spike in broad market volatility. Buying calls on the CBOE Volatility Index (VIX) could serve as an effective portfolio hedge against the kind of systemic risk that has been outlined.
