High Volatility, Nassim Taleb Calls Bitcoin Zero Value And Fails To Become A Currency

Nassim Nicholas Taleb (left) used to praise bitcoin a lot, but now he criticizes it. (photo: instagram)

JAKARTA – Nassim Nicholas Taleb, professor of risk engineering at New York University's Tandon School of Engineering, stated in a recent paper, that the largest cryptocurrency by market capitalization has, Bitcoin, failed to fulfill its purpose as a currency without a government. Bitcoin has also failed, as a hedge against inflation and as a safe haven investment.

“Few assets in financial history are more fragile than bitcoin,” says the author of “The Black Swan”.

Whereas Taleb has previously praised bitcoin a lot, especially about its potential to help people circumvent capital controls in the markets they rely on to manage exchange rates. He even referred to Bitcoin as “the first organic currency” in the preface to “The Bitcoin Standard” in 2018.

But in his recent paper, Taleb reversed his opinion. In a paper titled “Bitcoin, Currencies and Fragility,” published in late June, Taleb, who is also a probability researcher and former quantitative trader, says bitcoin is now worth “exactly zero.”

Instead he argues: “Gold and other precious metals are largely maintenance-free, do not degrade over the historical horizon, and require no maintenance to refresh their physical properties over time.”

Volatility

Taleb noted that in March 2020 bitcoin fell further from the stock market and could recover with a “massive injection of liquidity.” "That's sufficient evidence that it (bitcoin) cannot be used remotely as a hedge against systemic risk," he said.

He said bitcoin tends to respond to liquidity and it's unclear what would happen if the internet experienced a regional outage, especially if it happened during a financial collapse. Taleb noted bitcoin has maintained a very high volatility, between 60 percent and 100 percent over time.

The public also equates the success of bitcoin as a digital currency with the success of bitcoin as a speculative investment. “To become a currency will require stability and usability,” said Taleb, who is also a scientific adviser to Universa Investments.

The price of bitcoin as of Tuesday July 13 was trading around $32,000 and then hovering between $32,000 and $36,000. Whereas in mid-June it had touched 40,000.

Cryptocurrency exchange data shows bitcoin trading fell more than 40% in June this year, according to CryptoCompare. In the same month, the price of bitcoin hit a monthly low of 28,908 US dollars.