Nassim Nicholas Taleb Calls Bitcoin a Tulip Bubble Without the Aesthetics

https://www.bloomberg.com/news/articles/2021-10-21/taleb-calls-bitcoin-a-tulip-bubble-without-the-aesthetics

by cratermoon • 5 years ago

35 95 5 years ago

paulpauper• 5 years ago

this guy is so tiresome sometimes. BY having no position, if it falls he can still say he was right, but if prices go up he can still say he was right because he did not short it.

mmmmkay• 5 years ago

what is wrong with that? Knowing that eventually it will blow up and knowing when that will occur are two different things.

jacquesm6• 5 years ago

A huge asteroid will hit Earth.

There. Now are you going to call me this amazing prophet or just some schmuck who stated the obvious?

ashwagary11• 5 years ago

Whether he likes it or not, having no Bitcoin exposure is an open Bitcoin short position. That position has been a disaster for anyone that maintained it over the past 12 years.

oh_sigh• 5 years ago

Taleb made his F-U money by taking a position that very much went against the grain of most investors. He wasn't one of those people that go on TV every 6 months and say a depression is coming, but have very little skin in the game.

If he doesn't take a position here, it may just be because he can't figure the timing of when it will fall, not because he doesn't believe it will fall.

rufusroflpunch4• 5 years ago

He’s incorrect.

anonu2• 5 years ago

Please elaborate

rufusroflpunch4• 5 years ago

Bitcoin is an inflation hedge and a durable store of value. Tulips were 100% pure short term speculative venture with zero durability. Bitcoin has a value proposition outside of day trading speculators.

Right now people holding BTC long term is at all time highs. They are fundamentally different and it is a silly comparison.

anm89• 5 years ago

Taleb throws out controversial opinions for no other reason than that his brand is having controversial opinions and it keeps his name in circulation.

dragonwriter• 5 years ago

Taleb throws out controversial opinions for no other reason than that his brand is having controversial opinions and it keeps his name in circulation.

That’s true in general, but not particularly relevant here (except perhaps to demonstrate that this is a statement inconsistent with his reflexive pattern) because “Bitcoin is a tulip bubble without the aesthetics” is a pretty mainstream opinion, if one that a lot of mainstream proponents of have softened on (it is pretty close to Krugman’s position before that softened to a “a cult that can survive forever”.)

Actually, given his “not-bearish” line, which suggests he isn’t predicting imminent demise, only that is irrational to be on either side, his position seems like (despite that one line sounding like Krugman’s old position) it is actually identical in substance to Krugman’s more recent opinion: bitcoin has no fundamentals holding it up, but an indefinite supply of cultists that makes it unsafe to predict it going down at any particular time.

m3kw9• 5 years ago

The believers propping up btc is actually buying it more time till it gets actually massively useful as promised.

TomVDB• 5 years ago

Did he say anything controversial?

tartoran2• 5 years ago

I don’t think he said anything new at all. Talking about bitcoin when it hovers around all time high, especially for a personality like NT is a sure way to call for attention. But the message is not something that hasn’t been told hundreds of times

adamqureshi• 5 years ago

BTC are like casino chips. When you goto Vegas and at the Bellagio you give them $100 and you get back $100 worth of Bellagio chips, those chips only have value INSIDE the Bellagio and if you take those chips outside to a 7-eleven and try to pay for a slurpie and a taquito the 7-eleven guy will tell you to get lost we do not accept Bellagio casino chips. 2-cents. BTC value is an illusion they only hold value inside the BTC network and they are worth what the next sucker will pay for it. Yes you can make money from anyone inside the network who's willing to pay more than you did. Maybe i don't know what im talking about but im not the only one. 2-cents.

anonporridge2• 5 years ago

This is great analogy, except the "inside" of bitcoin is constantly growing bigger and assimilating more real world realms. It now includes the entire country of El Salvador.

The real magic happens when a nation state starts selling it's exports priced in bitcoin instead of dollars. In fact, Putin was recently asked about exactly this for Russia. He dismissed it as "too early to talk about the trade of energy resources in crypto", but my takeaway from that statement, is that the door is absolutely open. [0]

Then again, wanting to sell oil for something other than dollars is probably why the US killed both Saddam Hussein (wanted Euros) and Muammar Gaddafi (wanted gold backed African currency), so we'll see if the US still has enough proof of violence (PoV) to maintain security of the dollar as the global reserve currency.

I don't know what I'm talking about either, so this is just my 2 sats.

[0] https://www.cnbc.com/2021/10/14/russias-putin-says-crypto-ha...

pkaye• 5 years ago

probably why the US killed both Saddam Hussein (wanted Euros) and Muammar Gaddafi (wanted gold backed African currency)...

As far as I understand the Libya military intervention was a NATO mission and the French and British were early proponents of intervention before the US.

https://en.wikipedia.org/wiki/2011_military_intervention_in_...

ilammy• 5 years ago

As if any other currency is different. Try to take your cash and pay with it outside your country, people will look just as funny at you. Might be a bit different with currencies like USD, but in many countries it's actually illegal to accept payment in foreign currency.

m0llusk• 5 years ago

Bellagio has low transaction costs. The relatively small amount of money I have in Bitcoin would cost me more than its value in transaction costs to convert to dollars.

ashwagary11• 5 years ago

This may not be true, if you are comfortable sharing the amount, I may be able to help you.

Fiat has the same issue depending on the amount being exchanged. Attempting to convert a US penny to Euros can leave you in the same situation.

achenatx• 5 years ago

actually you used to be able to use poker chips like cash as this article describes and explains why it is no longer allowed.

If you try to bring in chips received from other people the casino can choose to not pay you out as the article describes.

https://lasvegassun.com/news/2007/mar/09/chips-no-longer-goo...

<<The harsh lesson he learned is that this isn't old Vegas, where casino chips were the coin of the realm, used to settle debts between friends, buy groceries and pay for haircuts.

That culture started to change 20 years ago when Nevada defined tokens as the property of individual casinos and prohibited their use "for any monetary purpose" outside the casino. They were simply intended as stand-ins for cash, loaned to players for the sole purpose of gambling.

The regulation was adopted to bring state law in line with federal rules prohibiting the creation of new currencies and with existing casino accounting procedures. The rule also has favorable tax implications for casinos, which aren't taxed on unreturned chips.>>

I thought for sure the fed gov would kill bitcoin by banning its use as a "currency" which is why I didnt get in at 25 cents.

anonporridge2• 5 years ago

They kind of did. It's defined as property, so every time you spend it, you trigger a taxable event and need to calculate capital gains or losses, which of course can get absurdly complicated if you use it for everyday purchases.

That's why most people are using it as a kind of savings account, where they rarely liquidate larger amounts into the local fiat when they need it.

Of course, now that's not necessary in El Salvador since it's now a legal tender alongside USD. That's the first country where it's use as a currency can really be tested en masse. Still too early to tell how that's going to work out.

recursive4• 5 years ago

Yes; BTC is non-fungible with the majority of your potential trading partners. However, depending on your locality, the same can be said about USD, Renminbi, Euro, et al. You are biased in that you are discounting the shifting Overton Window of what your trading partners will accept in the future.

AnonC3• 5 years ago

That analogy fails badly. It could be said of any fiat currency. Take some Japanese Yen to different country where it is not a readily accepted legal tender and give it in a supermarket. I’m sure the response would be the same as what you quoted.

The value and the next sucker part also fails for the same reason. You can exchange or even use to pay, say, USD in many countries in shops and street side currency converters of dubious legal standing. They would trade it with the “next sucker” because they’re part of a network that values USD.

nuerow2• 5 years ago

BTC are like casino chips. When you goto Vegas and at the Bellagio you give them $100 and you get back $100 worth of Bellagio chips (...)

This comparison is not valid at all because, unlike any crypto like BTC, the value of Bellagio chips is specified by a central authority (Bellagio itself) which guarantees the exchange between chips and cash with a fixed and very stable exchange rate.

With crypto like BTC, not only their value fluctuates wildly and thus fail as a store of value but also the only option you have to exchange them for fiat currency is to sell them to other customers in an open market.

The best comparison with BTC is indeed tulips during the Dutch tulip craze: they have no intrinsic market value, their market was highly speculative, and demand was driven by mass hysteria.

ashwagary11• 5 years ago

their value fluctuates wildly and thus fail as a store of value...

Sounds like TSLA and many other publicly traded companies are bad stores of value according to that argument. Many people with stock exposure in their retirement portfolio would disagree.

H8crilA6• 5 years ago

Don't know if you've read his paper on Bitcoin, it's a decent one, it roughly boils down to two points: 1) no benefit in the meantime for the holder (such as a dividend or direct utility from the thing itself - a painting can be hung on a wall to look nice), 2) non-zero probability of perishing over any time period. From those two premises one can indeed conclude that the asset should be valued at no more than 0.

On the surface this is right, however I'm wondering if the first assumption is actually true. People do get some sense of fulfillment from participating in this "revolution", sticking it to the "big system", protection of capital from the "insane inflation", or just plain bragging rights (ex: laser eyes). Should this type of a benefit exist indefinitely then the conclusion of it being worth <= 0 isn't correct.

zippy5• 5 years ago

I’d say that the first premise is objectively false. I think it’s much simpler. The volatility of asset has correlated narratives of hope and fear in the mind of the asset holder. These in turn produce a dopamine response, akin to mechanisms of a gambling addiction

neom2• 5 years ago

I would have said 1) is for sure true till recently, my cleaner started asking to be paid in BTC, and even more crazy I would never have thought (I only took a tiny position recently)... I'd rather pay her cash because I'm worried I'll be that pizza dude in 10 years. :\ I'm not really bullish on btc and I don't really care what it does, but that interaction with my cleaner gave me pause.

H8crilA6• 5 years ago

1) is about whether the asset itself generates any benefit to the holder. The cleaner example has nothing to do with that.

jtsiskin• 5 years ago

You can get a printout of a painting which looks identical to the real painting. Or you can buy a fake diamond that looks identical or better than the real thing. Yet somehow original paintings/real diamonds get sold at high prices?

H8crilA6• 5 years ago

I'm not judging - it looks like people are willing to pay for "authenticity", and always were. It is a legitimate "value stream" to someone even if you disagree with it.

tuesdayrain2• 5 years ago

1) no benefit in the meantime for the holder (such as a dividend

There is no fundamental difference between an asset paying dividends or simply appreciating in value. At the end of the day all an investor cares about is ROI. Holding BTC's lack of dividends against it while it's gained 371% in the past year strikes me as odd.

AnonC3• 5 years ago

1) no benefit in the meantime for the holder (such as a dividend or direct utility from the thing itself - a painting can be hung on a wall to look nice)

That point in the quote doesn’t make sense when you consider holding a stock like Amazon or Salesforce that never pays dividends. Are those stocks then the same as crypto? It seems like an oversimplification. Bitcoin, with this point, is just purely a “growth stock”.

H8crilA6• 5 years ago

If they will never pay dividend or get their stock bought back, or get acquired, or [some other obscure way of paying shareholders] then their stock is worth exactly $0, yes. The key word is "if".

_9omd6• 5 years ago

I haven't read the paper, but based on your description these are really lame arguments. There is plenty of benefit/utility for holding Bitcoin, even if that doesn't apply to everyone in the world. The two biggest are the ability to store value outside the control of governments and send value anywhere in the world free of censorship. Many people don't have or a see a need for this, but that doesn't negate how immense the value is. Bitcoin provides a way to opt out of a financial system that's not serving you, and that is an incredibly powerful concept.

Point 2 seems even more ridiculous. Just about everything has a non zero probability of perishing over any time period (even our sun :)). TSLA/AAPL/GOOG all have a non zero probability of perishing, but that doesn't make them bad investments.

jacquesm6• 5 years ago

My savings accounts are earning me -.5% per year... That looks like 'no benefit to the holder' to me, so Bitcoin is actually outperforming regular currency by just sitting at 0.

bhouston• 5 years ago

Bitcoin has become something people want to happen. It is being propped up by belief. In many ways it is fake it until you make it. And it may well make it eventually.

This is similar to tether. Tether has been fraudulent in its claims but it also is growing and can outgrow its fraud so that it becomes mature and fully backed. Again a fake it until you make it.

Basically belief and patience on the part of the holders is allowing bitcoin and tether time to become real. Paradoxical to a degree but this is what is happening.

People are right it has no intrinsic value or tether is a fraud but over time if they are allowed to grow they can outgrown this. So everyone is right.

As long as the government doesn’t outlaw crypto here in the us. This is the main way it dies I think. Given the us gov tends to be beholden to special interest and bitcoin is a rich special interest I think it has at least a chance of survival.

throw0101a2• 5 years ago

Bitcoin has become something people want to happen. It is being propped up by belief.

All "money" is propped up by belief (in its value for exchange).

The 'disadvantage' of BTC (and gold) is that it is inflexible and it takes resources to create. Some people—'hard money' folks—think of this as a positive trait.

AnonC3• 5 years ago

Fiat currencies also take a lot of resources to create — human and computing resources (to define and create the money out of some calculations, be it a central bank for policy reasons or a private bank for fractional reserve banking reasons), physical elements and molecules for currency bills, infrastructure to handle electronic payments, settlements, reversals, etc. It’s all so widely distributed that people don’t think of the costs.

I have seen contrary arguments on the enormous amount of energy used to create Bitcoin. Is there a good comparison showing the real (material) costs of fiat currency vs. Bitcoin?

rufusroflpunch4• 5 years ago

I am one of those hard money people. The work secures the network. In order to alter the ledger, you need to reverse not just one block, but every block after it, means you would have to redo the work for every single block. All the while, the rest of the network keep working along the real chain, mining new blocks. The work makes it impossible to alter the chain.

ekianjo2• 5 years ago

All "money" is propped up by belief (in its value for exchange).

Nope, it's propped up by a government who is forcing it on you, whether you believe in its value or not. It's not like you have a choice not to use the <national currency where you live> in most countries. You can't ask your employer to pay you in anything else but the government-approved currency either.

dehrmann• 5 years ago

Bitcoin has become something people want to happen.

99% of Bitcoin holders just want to make money, hopefully get rich. They're not concerned with if Bitcoin the currency happens, but it's a story they like to tell themselves.

emerged• 5 years ago

So you’re saying a new currency wants to supplant the US dollar, and the only thing that can stop it is the US government? Hold on, going to make a phone call to the US government.

tenaciousDaniel3• 5 years ago

I came across my favorite description of crypto just a few days ago on Twitter: "imagine letting your car run idle so it can create solved sudokus that you can trade for heroin".

throw0101a2• 5 years ago

"imagine letting your car run idle so it can create solved sudokus that you can trade for heroin".

* https://twitter.com/theophite/status/1030225104234373121

_9omd6• 5 years ago

How is this the top comment here! I'd expect better out of HN users. Even if you don't like bitcoin it's ridiculous to attack it with a joke that doesn't actually map to reality. Sure, it's a pretty good joke, but it's a terrible argument against bitcoin.

tenaciousDaniel3• 5 years ago

It's not an argument at all, it's just a good joke. I'm actually undecided on crypto. Yes we're a professional community and this isn't reddit, but we can have a bit of humor here and there.

iab3• 5 years ago

Um, not just heroin, also digital ownership of URLs as well

loser777• 5 years ago

There may be similarities with the Tulip bubble but the underlying "asset" seems to not be comparable. Bitcoins in theory are almost infinitely more durable than turnips, and even casino chips as noted below. Like it or not, bitcoins probably have vastly more "mindshare" as a percentage of the global population than turnips or casino chips ever have or will.

monster_group• 5 years ago

tulip != turnip.

_9omd6• 5 years ago

Turnip mania peaked with Super Mario Bros 2.

kryogen1c• 5 years ago

yes yes. many of us think btc is a scam, others think its revolutionary. taleb is smart.

more importantly, what in the _fuck_ is this article from Bloomberg?

1) it is literally more ad than article

2) most of the article is a grammatical rephrasing of the tweet with no attempt to value add.

3) the only non-tweet, non-ad sentence is a vague reference to an unrelated opinion taleb had about btc

4) the citation for 3? another tweet

i dont know how to finish this comment. what a sign of the times. journalism bankruptcy.

tenaciousDaniel3• 5 years ago

I tried reading a Forbes article earlier today, and gave up within 5 seconds after the third popup prevented me from reading the article.

iab3• 5 years ago

Consider yourself lucky, soon they will be charging for pop ups

forgotmypw17• 5 years ago

I'll finish the comment for you: The medium is the message.

Certain domains I just don't click the link anymore.

Fool me once, and all that.

ashwagary11• 5 years ago

Taleb is smart

Even though he is smart at risk management, can he be an IYI (intelligent yet idiot) when discussing another topic?

I personally think everyone is an IYI in some sphere.

_9omd6• 5 years ago

Bitcoin is freedom technology, providing the ability for people to opt out of monetary systems that don't serve their needs. It's a technological-monetary-social-political revolution disguised as a get rich quick scheme. The average person is no doubt in it to make money, but in satisfying their greed they are unknowingly fueling a technology which has a good chance of changing the world in fundamental ways.

You could also say it's like a trojan horse. Irresistibly beautiful, but inside lies the seeds of destruction that could free people from oppression and allow better and more efficient human organization. A Bitcoin moonboy in the USA fueled by their selfish greed is helping to empower someone on the other side of the world living under an authoritarian regime with hyperinflation and financial censorship.

I think this is a beautiful alignment of incentives. We accept that people are greedy, and provide them something that satisfies their greed, which is used to build a better financial system for the world.

Slightly tangential, but I'm generally fascinated by the idea of aligning incentives to create mechanisms that do good in the world. Instead of expecting people to be different than their base natures, change the game they're playing such that allowing them to follow human instinct effects positive change in the world. I don't yet have a clear idea how this could be applied to something like environmentalism, but it does make me wonder if it's possible. Is there a way to incentivise greed and harness the power to reduce CO2, clean the oceans, and restore ecosystems?

rufusroflpunch4• 5 years ago

Well said.

jimmydorry• 5 years ago

Thank you for putting this so eloquently.

Something like a "Proof of Carbon Capture" would align the incentives of polluters and society. The problem is implementing it in a way that couldn't be gamed.

_9omd6• 5 years ago

Yes, a coin that's mined by "Proof of Carbon Capture" would be amazing, but I can't imagine how it would work. Decentralization and neutrality is hard/impossible once you're trying to interface with the real world. How could you verify the carbon capture without a centralized authority?

I can imagine it would be possible in the far future with automation/robotics verifying the captured carbon in a neutral and decentralized way, but with current tech I can't see how it could work without being susceptible to being gamed. But maybe I'm just lacking imagination.

mohanmcgeek• 5 years ago

Bitcoin is only fuelled by people's poor understanding of what money is.

It's not changing the world except for when the next revolution really comes, people would be averse to it having lost so much money chasing this false gold.

tuesdayrain2• 5 years ago

Bitcoin is only fuelled by people's poor understanding of what money is.

Citation needed. I majored in economics and BTC is a huge percentage of my portfolio.

singularity2001• 5 years ago

Except that participants unknowingly create the most unjust distribution of wealth the world has ever seen. If Bitcoin really becomes the money of the world, late entrants might have to pay millions per coin (or fractions of cause) whereas early entrants only had to pay cents. We make people billionaires who contributed nothing to society.

jacquesm6• 5 years ago

This goes just the same for any 'old money' and landowner group. Late entrants: those born to people not of means today are starting with a huge handicap. And the old money and landowner classes contributed nothing to society, they just inherited their wealth on account of the birth lottery.

xiphias2• 5 years ago

I don't see anything unfair with this. I tell my friends that they can either buy BTC for $60k now or for millions per BTC later, and they choose not to act, although I'm happily providing all the knowledge and resources to understand it. They prefer to own something that they can see and feel, and I respect it.

kobasa2• 5 years ago

Everybody buys BTC at the price they deserve. If you wanna wait 10 years for it to get 'safe' and 'adopted' then you pay for the people who have taken the risk and contributed to its survival and growth.

Nassim Nicholas Taleb Calls Bitcoin a Tulip Bubble Without the Aesthetics

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