Billionaire hedge fund manager Ray Dalio has issued a stark warning, stating that the global financial system is approaching a critical juncture. Dalio expressed concerns that central banks are beginning to "shy away" from fiat currencies and sovereign debt, indicating a breakdown in the established monetary order.
Speaking at the World Economic Forum (WEF) in Davos, Switzerland, Dalio told CNBC's Andrew Ross Sorkin that this erosion of trust and shifting behavior among policymakers is driving the perceived breakdown of the monetary system. His remarks coincide with a period of heightened geopolitical tension, including U.S. President Donald Trump's threats of new tariffs on European allies, following his controversial comments regarding Greenland's sovereignty.
Erosion of Trust in the Dollar System
Dalio articulated that the escalating geopolitical tensions are symptomatic of a deeper fragility within the global financial system, which has historically relied heavily on the U.S. dollar. He observed a tangible shift in how central banks perceive and hold assets.
Fiat currencies and debt as a storehold of wealth are not being held by central banks in the same way. The biggest market to move last year was gold — far better than the tech markets.
The founder of Bridgewater Associates suggested that this move away from fiat currencies is a predictable response to instability, drawing parallels to historical cycles where geopolitical conflict and excessive fiscal spending prompted a pivot towards "harder" assets.
Dalio further cautioned that the relationship between the United States and nations that hold significant amounts of U.S. dollars and Treasurys is becoming increasingly strained. As the U.S. continues to issue debt at record levels, the willingness of other countries to finance these deficits is reportedly diminishing.
We know that both the holders of U.S. dollars … and those who need it, the United States, are worried about each other. If other countries holding dollars are nervous while the U.S. keeps producing more, that’s a big issue.
He warned that historical precedents show that when international conflicts arise, even allies become hesitant to hold each other's debt, often preferring to move towards a hard currency. This dynamic, he noted, has historically preceded significant shifts in the global reserve structure.
When you have international conflicts, even allies do not want to hold each other’s debt. They prefer to go to a hard currency.
Gold and Bitcoin Emerge as Alternatives
Amidst this weakening faith in fiat currencies, Dalio reiterated his recommendation for investors to diversify their portfolios. He specifically suggested that gold should constitute between 5% and 15% of a well-balanced portfolio.
The performance of gold has been notable, with prices soaring more than 70% in the past year and recently surpassing $4,763 per ounce, outperforming even the tech stock market.
Within the cryptocurrency community, Bitcoin (BTC) is viewed as a digital-age alternative to traditional fiat-backed assets. Notably, Ray Dalio himself has acknowledged holding a small portion of Bitcoin in his investment portfolio.
Concerns about dollar debasement have coincided with a surge in public interest, as evidenced by record-high Google searches for "Bitcoin" and "dollar debasement" in the preceding October. Bitcoin's price briefly crossed $110,000 following a period when U.S. debt surpassed $38 trillion, further highlighting its appeal as a potential hedge against currency devaluation.
Financial advisors and institutions are also showing increased openness to digital assets. A Bitwise/VettaFi 2026 Benchmark Survey indicated that 32% of financial advisors allocated client funds to cryptocurrency in 2025.
Furthermore, Bank of America has recently advised its clients to consider incorporating a 1% to 4% exposure to digital assets within their portfolios.