BITCOIN: ALL FOAM, NO BEER
In a recent six-page draft paper titled “Bitcoin, Currencies, and Bubbles,” Taleb laid out four key arguments against the cryptocurrency, which he promoted to his 743,000 Twitter followers. First, the author said that in spite of the hype, bitcoin failed to satisfy the notion of “currency without government.” In fact, he said, bitcoin proved to not even be a currency at all. “The total failure of bitcoin in becoming a currency has been masked by the inflation of the currency value, generating (paper) profits for large enough a number of people to enter the discourse well ahead of its utility,” he said. Taleb’s second criticism said bitcoin can neither be a short nor long-term store of value. He used the famous juxtaposition of gold versus bitcoin – which he said was poor comparison – to illustrate his point. “Gold and other precious metals are largely maintenance-free, do not degrade over a historical horizon, and do not require maintenance to refresh their physical properties over time,” he said. “Cryptocurrencies require a sustained amount of interest in them.” His final two points argued that bitcoin is not a reliable inflation hedge, contrary to some analysts’ views, and is not a safe haven for investments – whether meant to protect against government tyranny or other catastrophes. Nassim reminds us that bitcoin was no
protection in the panic of last year; it sank even more than the stock market. And when the FBI was recently able to track ransomware payments made by Colonial Pipeline – reported to be in the region of $4.4 billion in bitcoin – it became obvious to everyone that the alleged privacy and security of bitcoin transactions was more wishful thinking than fact. But the cryptos still have their fans and “hodlers” (people determined to hold on through thick and thin). Many of them began hodling when bitcoin was under $1,000. Even after getting cut in half lately, it’s still over $30,000 as of this writing. “See,” begins a crypto enthusiast. “I told you they were valuable. That proves it.” USEFULNESS OF MONEY That is what triggered yesterday’s wondering. To make a molehill out of a mountain, what we notice is that the more a currency goes up (or down) in price, the less valuable it becomes. Money – or anything that purports to be money – is not valuable in itself. You can’t eat it. It’s generally not much to look at. You can’t wear it or use it for transportation.
A dollar may be used to start a fire. A funny bunny crypto coin can be an amusing joke. A gold coin can serve as a paperweight.
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July 2021
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