Bitcoin will automate most of our financial system with the help of power plants, energy, and computers if its widespread adoption is successful. It will, at the absolute least, establish a parallel system to the current banking system, which would shield it from the crashes of the latter (see 2007-2008 financial crisis). Naturally, it will take years for this new system to reach its full maturity. Because he lacks the vision, according to Taleb, this goal is worth exactly nothing.
Is now a wise moment to buy bitcoin? I think it is. Few people can develop such a belief, with the exception of proper philosophers who think in terms of centuries, and the best investment managers who think in terms of decades.
Thus, in an intriguing turn of events, philosophers—who traditionally have never cared about wealth—and wealth managers—who, unsurprisingly, only care about wealth—are coming together. Philosophers believe that humanity will eventually transform into a cybernetic organism, and they predict that any technology that makes this transformation easier will eventually take over. On the other hand, wealth managers understand that a thermodynamically closed alternative financial system may be advantageous to their operations.
There is nothing more to say about it. However, I can expand.
despite the fact that they are largely irrelevant, there are different opinions in the market. For instance, there is the befuddled Nassim Taleb, who publishes 300-page books about unimportant concepts that can be summed up in one sentence. As if we didn’t already know that a scientific model is only a rough draft and not the freaking gospel, he talks about “black swans.” He devoted 300 pages to arguing that no event can be predicted with absolute accuracy and that accidents and tragedies do occur.
However, he referred to these occurrences as “black swans” instead of naming them accidents or disasters, which is what they actually are. And actually italicizing at least one word in every paragraph, if not every sentence, in a way that is beyond frustrating language.
And also gratuitously quoting and name-dropping intellectuals for absolutely no reason. So why did people pay attention to him again? Because he made a fortune trading options.
Nassim Taleb believes bitcoin is worth exactly zero and that bitcoin’s price drop in March 2020 “proves” that it can’t be used to hedge against risk (as if all risks were equal, and as if diversification wasn’t the best general hedge against risk to begin with), showing once and for all that he not understand his own book.
You cannot “prove” anything from a single data point, my dear Taleb. The March 2020 lockdown was a freak event — an exception — a “black swan,” to adopt your terminology.
But what exactly is his mistake here? The problem is that he has failed to realize that bitcoin is still in development, it is still growing and evolving. The mistake he’s making is equivalent to watching a healthy cat kill a newborn lion, and then concluding from that freak observation that cats are stronger than lions.
He seems to think that bitcoin’s future behavior will mirror its current behavior, but how could that be the case when we are this early? So early in fact that no regulation exists for it and most people are still trying to define what exactly bitcoin is. Meaning, practically nobody has a clue about what bitcoin is. Taleb, then, is not considering in his analysis the idea that bitcoin’s maximum utility hinges on a future widespread adoption. He’s analyzing bitcoin at this point in time, myopically, with a total disregard for the effect of future favorable conditions in his analysis, as if bitcoin today was already a finished product and process.
But it isn’t — because bitcoin is designed to bind itself cyber-symbiotically to mankind, and right now the portion of mankind to which it has bound itself is not significant enough, in terms of raw wealth and investment power.
To Nassim Taleb, bitcoin seems to function like a Ponzi scheme, but I say it will resemble a Ponzi only if it fails to develop into maturity. Otherwise, it will be nothing like a Ponzi and very much like an extremely awesome asset with great utility. I could also say that most life on planet Earth is a “Ponzi,” because a few billion years down the line the Sun will expand and destroy the entire planet, destroying with it, for example, all the real estate contained in it.
At that time, the real estate bag-holders might perhaps say that real estate investment was always a Ponzi to begin with, especially after they see every bitcoin holder safely move their bitcoin out of the planet. In this scenario,
what exactly is the Ponzi?
So we see that Taleb’s quote above is meaningless: in a sufficiently advanced future, everything is fated to go to zero, but of course that doesn’t mean there’s no value to anything.
Right now we are, then, entering bitcoin’s “development into maturity” phase (having already gone through ten years of its infancy) which is the final and protracted phase that will reduce price volatility and effectively bring to the table its store of value capabilities.
Can this phase fail to be completed? Sure. In nature, lifeforms occasionally fail to develop into maturity. That doesn’t stop me or any other person from trying to imagine what a particular lifeform can look and behave like if favorable conditions emerge that guarantee its prosperous development.
This is, of course, a basic idea from biology. In the technological realm, however, the same principles from biological and evolutionary thought can be applied because tools are created, they grow, they mutate, they clash with each other, and eventually evolve or become obsolete in a manner that resembles that of lifeforms in nature; only in the technological realm it is mankind which dictates the fate of the tool, while in the biological realm, it is nature.
The point is that this “development into maturity” phase that I’m referring to is of course in the case of bitcoin the “widespread adoption of bitcoin” phase: the phase in which all worthwhile wealth managers agree that bitcoin’s rules are great and decide to play by them—allocating a small portion of their capital to it, initially—and gradually but steadily adding some more whenever they see fit. For it will be this phase that will put the cybernetic symbiosis between bitcoin and mankind in full swing.
As of right now, bitcoin is useful for wealth transfers and that’s about it. However, bitcoin can potentially, i.e., in theory, under favorable conditions, be much more useful than it currently is. For we are envisioning, after all, a radical optimization of the entire financial structure with the aid of automation.
It’s on this coming, higher utility that we are betting, dear Taleb — and this is why we couldn’t care less now about volatility or fragility or your “convex curve responses to stressors.” I know you wrote an entire book about randomness, and even tried to create a theory on how to utilize randomness to our benefit. But at the end of the day this entire theoretical endeavor is pointless because the purpose of theory is to predict the future, while randomness is defined precisely as that which cannot be predicted.
Sure, yes, of course we want to minimize the harmful effects of randomness (=chance,=accidents, =disasters). It’s called risk management. But until the non-predictable accident (see the pleonasm?) actually happens nobody knows how fragile our process-activity-asset stands relative to said accident—otherwise the event wouldn’t be by definition an accident and we’d have been able to factor it in our theories and models!
But not only do you fail to see this triviality, you even give lectures about it, as if randomness could be in anyway intelligible, as if we hadn’t already defined it as unintelligible! And as if the book’s message was something profound instead of obvious, as obvious as saying the sky is blue or that birds fly.
If you feel that I am being unfair to Taleb, dear reader, I will simply point out that when he began gratuitously quoting philosophers for no apparent reason for hundreds of pages in a row, he was asking for such a response. He evoked the spirit of philosophy, and now that it’s biting him back, it’s a classic example of a wizard’s spell backfiring on its creator. Taleb, I hope you like it!
That’s it, then. Bitcoin is fantastic, according to philosophers, investment managers, and a few visionaries. The rest of humanity, on the other hand, simply doesn’t give a damn about any of this. Finally, there are others who lack clarity of thought, such as Nassim Taleb. In other words, I consider the danger of bitcoin dropping to zero to be comically minimal compared to the possible benefits.