Nassim Nicholas Taleb, professor and author at New York University
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Nassim Nicholas Taleb has changed his stance on Bitcoin.
The author of “Black Swan” said in a recent article that the largest cryptocurrency by market capitalization has failed to meet the expectations of a currency without a government, a hedge against inflation and a safe investment.
“Few assets in financial history have been more vulnerable than Bitcoin,” he said.
Lebanese-American Taleb had previously been positive on Bitcoin, particularly its potential to help people bypass capital controls in markets that rely on them to manage their exchange rates. In the preface to “The Bitcoin Standard” 2018, he called it “the first organic currency” and “an insurance policy” against state control over the currency.
In his most recent paper, released in late June titled “Bitcoin, Currencies, and Fragility,” Taleb says that Bitcoin is worth “exactly zero” in part because it requires continued interest in order to obtain it.
In contrast, “gold and other precious metals are largely maintenance-free, do not degrade over time, and do not require maintenance to refresh their physical properties over time,” he said.
Volatility as a key characteristic
Founded in 2008, Bitcoin has always been notoriously volatile, despite the Covid-19 pandemic year being the first time it has seen such extreme volatility in the face of a global economic crisis.
Taleb noted that Bitcoin had fallen further than the stock market in March 2020 and thus recovered “after the massive injection of liquidity”. That is “sufficient evidence that it cannot be remotely used as a hedge against systemic risk,” he said.
He also added that Bitcoin tends to be liquidity-sensitive and that it is unclear what would happen if the internet suffered even a regional outage, especially if it happened during a financial meltdown.
Taleb noted that Bitcoin has maintained “extremely high volatility throughout its life” between 60% and 100%, although that does not mean that a cryptocurrency cannot “displace fiat” – that is, money backed by the government, which it spends but is not covered by a physical commodity such as gold.
“It is indeed desirable to have at least one real currency without a government,” he wrote in his paper. “But the new currency simply needs to be more attractive as a store of value by keeping a weighted cart of goods and services with minimal errors.”
The success of Bitcoin as a digital currency is also constantly confused with the success of Bitcoin as a speculative investment. To be a currency, it would have to have some stability and ease of use, Taleb said.
Bitcoin price was around $ 32,000 on Tuesday morning and has been hovering between $ 32,000 and $ 36,000 for about a month after briefly hitting $ 40,000 in mid-June.
Cryptocurrency exchange data shows that bitcoin trading fell more than 40% in June this year, according to CryptoCompare. In the same month, Bitcoin price hit a monthly low of $ 28,908.
Still, the June 2021 volume is among the top five months ever, according to Kaiko data.