Bitcoin as a pyramid scheme
What is wrong with the author of “Black Swan”, who described cryptocurrency as a “Ponzi scheme”.
What does the comparison with … olive oil show? The signals sent by the latest uptrend of Bitcoin.
Black Swan author Nassim Taleb described Bitcoin to CNBC as a “Ponzi”, saying “Everyone knows this is an open Ponzi”.
The well-known author believes that it is too volatile to be considered a reliable currency and is not a safe hedge against inflation. To be precise, he stated that there is no connection between inflation and Bitcoin. “There is absolutely nothing to do with financial figures that connects it. If there is hyperinflation, it will end up being worthless. If you are afraid of inflation, buy a piece of land. Grow olives. Olive oil is a better investment.
Bitcoin is something casual, there will be no tomorrow, a trick, a speculative tool. You can not replace a currency like a dollar with something so volatile that you can not even trade with it. A currency presupposes price stability. They are like tulips. “You can make another one tomorrow and say that currency as well,” Taleb continued.
Where to start and where to end. We never expected to hear so many inaccuracies from Taleb.
Let’s start with Ponzi and explain what it is: “Ponzi systems are designed and operated by a central body, which uses money from new entrants to repay promising returns to older ones.”
None of this applies to Bitcoin. No older investor receives money from a new entrant. Its price is determined by the forces of supply and demand, such as any commodity, any stock, any stock market value. And there is certainly no central control.
For tulips, we do not need to say much. Just use a simple diagram to help you finally realize how fragile the claim of comparing Bitcoin to tulips is. Where exactly do they see the resemblance?
It is wrong to estimate a rapid rise in prices immediately as a bubble. Indeed, the general rule is that prices do not change quickly. However, subversive technology can change the way people value things faster than usual.
There is no doubt that Bitcoin is more volatile than the euro or the dollar. But here there are two objections. The first is that if you refer this argument to a Turk or an Argentine or to residents of several other countries who have seen their national currency turn into scrap paper at a rapid pace, it is unlikely to convince them of the superiority of the state currency over Bitcoin.
Taleb cannot help but know this. If there is even the slightest possibility that he does not know what is happening in these countries, it certainly becomes a complete zero if we talk about Lebanon, his homeland. There, official inflation for a year is in triple digits. Even before the catastrophic explosion in the port of Beirut, people were finding ATMs empty. Due to the sharp slippage of the currency, they had trouble importing even wheat.
The second objection concerns the blockchain technological revolution. We are in the early days and we have experienced only a small fraction of the potential of technology. The promise of mass adoption of the Bitcoin network with geometric progress leads to a new wave of possibilities, probably unknown to today’s data. There is a threshold where quantity varies in quality. The point that becomes liberating and multiplies the opportunities for everyone.
Finally, let us make a reference to the olive oil mentioned by Nassim Taleb. As we can see in the diagram, it has the same price it had 30 years ago. That is, in the long run, anyone who had invested in olive oil had suffered terrible losses due to inflation. And to say that at least olive oil shows stability? In the last month, from 3,000 tons, it has dropped to $ 1,000 and today is close to $ 4,000.
Invoking the usefulness of olive oil reminds us of someone else. Until a few months ago, Mark Cuban consistently and emphatically stated that bananas are worth more than Bitcoin. They are more useful because you can eat them, he claimed. Lately, however, the well-known billionaire investor has become one of the most fanatical fans of crypto.
Who is right
As Taleb himself points out in his book, In the Error of Random, the goal of analysts should always be to dispel prejudice and focus on what is happening. What is true and maybe why. It is obvious that we have a classic case of the που teacher you teach.
From the same book we singled out another excerpt: “In every reading of the history of science, we find that almost all clever inventions seemed paranoid when they arose. If we were to explain to a 1905 physicist that time slows down when we move, he would think we had run away from some asylum. “Even the Nobel committee did not award Einstein for his work.” Not to mention his chapter on network dynamics, which seems to be written to explain exactly why Bitcoin was developed.
In any case, neither our opinion nor that of the Taleb matters much, does it? Not anyone else on an individual level. What matters is what the market thinks. And the data so far show that not only is it not a bubble, but it is being adopted at the fastest pace we have seen, perhaps throughout history.
Electricity was not a bubble. Cars and planes were not bubbles. The Internet was not a bubble. They were technologies that changed the world. Bitcoin is an invention, a technology that the world has not yet realized its potential. But it is only a matter of time before they are informed. Not all, but a critical mass that will make a difference.
The news is running
- Let’s leave Taleb and move on to a development that can only be described as shocking. The European Investment Bank will issue two-year digital bonds worth 100 million euros on the Ethereum network, according to a report by Bloomberg. The contractors will be Goldman Sachs, Banco Santander and Société Générale.
- After the introduction of Coinbase on the Nasdaq and the publicity that the event received, the number of those who downloaded the exchange application on their mobile phone skyrocketed, as we see in the chart. An offer that encouraged the creation of new users certainly helped, because anyone who became a user by April 22nd was given the opportunity to win $ 500,000 in Bitcoin.
- So far, the price of Bitcoin is moving in a similar way compared to the previous uptrends of 2013 and 2017. As we can see in the chart, if it continues at this rate, the peak will occur near mid-September and will exceed $ 300,000.
- Things move faster than the speed of light in crypto space. While we are wasting our time commenting on dinosaur αντι perceptions, in Germany, they are wasting no time. The new legislation will allow Spezialfonds managers, 4,000 of the most popular investment funds, to be able to invest 20% of their portfolio in cryptocurrencies from 1 July. Spezialfonds, which have 1.2 trillion euros to invest, have so far not owned any crypto because it was not allowed.
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