Why Nassim Nicholas Taleb thinks bitcoin's real value is zero

Why Nassim Nicholas Taleb thinks bitcoin's real value is zero

The cryptocurrency is a "revenue-free bubble," the Black Swan author says

Cryptocurrencies are under siege these days with the U.K. regulators just the latest looking to crack down on the free-wheeling currencies.

This morning, Binance Markets Ltd., an affiliate of top global crypto exchange Binance, was banned by the U.K. financial watchdog from doing any regulated business in the country. Binance is also exiting Ontario amid a regulatory crackdown.

In recent months, bitcoin, the leader of the crypto pack, has been criticized for its its massive carbon footprint, while regulators in China have ordered major banks and fintech players such AliPay to reiterate a ban on cryptocurrency services.

Adding to the heat, Nicholas Nassim Taleb, the economist who coined the term Black Swan, believes bitcoin’s real value should really be a big fat zero.

“In its current version, in spite of the hype, bitcoin failed to satisfy the notion of ‘currency without government’ (it proved to not even be a currency at all), can be neither a short or long term store of value (its expected value is no higher than 0), cannot operate as a reliable inflation hedge, and, worst of all, does not constitute, not even remotely, safe haven for one’s investments, shield against government tyranny, or tail protection vehicle for catastrophic episodes,” the economist said in a research paper published earlier this month.

Taleb argues that bitcoin is a “revenue-free bubble” as it offers no dividends nor expectations of future earnings, making it an earnings-free asset.

The economist become famous after his 2010 book The Black Swan: The Impact of the Highly Improbable, focused on navigating large negative events that are almost impossible to predict. He is also the author of best-sellers Fooled by Randomness and Antifragile.

Taleb says bitcoin’s comparison to gold is also a “poor” one, as the yellow metal has physical attributes and other uses such as jewellery and industrial uses, which is not the case for the virtual currency.

“Technologies tend to be supplanted by other technologies with a vulnerability in proportion to their past survival duration (>99% of the new is replaced by something newer), whereas items such as gold and silver have proved resistant to extinction,” Taleb said in his study.

Bitcoin also fails as a safe haven. When the Colonial Pipeline’s system became a hostage of Russian hackers, it had to pay the ransom in bitcoins to reclaim control of its system. But it did not take long for a Wolfram Research specialist to statistically detect and triangularize “anonymous” ransom payments made by the pipeline. Within weeks, the FBI was able to hack the account and retrieve some of the ransom payment.

Taleb’s also questions Bitcoin’s status as a currency given its volatility. In April, the currency hit an all-time high of US$65,000, but is currently trading at nearly half its value, making it hard to be a measure of value.

“There is a conflation of ‘accepting bitcoin for payments’ and pricing goods in bitcoin. For that the price in bitcoin must be fixed, with the conversion into fiat floating, rather than the reverse.”

Finally, blockchain, the technology that Bitcoin runs on, also struggles to have any utility.

“The customary standard argument is ‘bitcoin has its flaws but we are getting a great technology, we will do wonders with the blockchain,” Taleb concluded.

“No, there is no evidence that we are getting a great technology —unless ‘great technology’ doesn’t mean ‘useful.’ And we have done — at the time of writing —in spite of all the fanfare, still close to nothing with the blockchain.”