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Why Nassim Taleb Thinks Bitcoin is Going to Zero Dollars: Explained in 4 Minutes - YouTube
Channel: Stocks And Coffee With Didi
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Nassim Taleb on why bitcoin is going to Zero
In this short video, I want to briefly discuss
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some of the reasons Nassim Taleb is stating
that Bitcoin will in fact go to Zero. He recently
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published a paper titled bitcoin, currencies,
and bubbles. It is also referred to as the
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bicoinblackpaper. The paper will be linked
in the description below as well as a video
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in which Taleb spoke in Zurich and elaborates
on some aspects of the paper.
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Without further introduction, lets jump into
it. He opens the paper stating that he will
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demonstrate why bitcoin fails as a currency,
fails as a store of value, fails as an inflation
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hedge, and fails as a tail-risk hedge.
First and foremost, Taleb points out that
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bitcoin depends on miners to validate transactions.
Simply put, without miners and by extension
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without transaction validation, bitcoin is
worthless. The need for sufficient incentivization
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of miners represents a critical fragility
in the bitcoin ecosystem. Taleb contrasts
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this fragility with gold, and I quote Gold
and other precious metals are largely maintenance
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free do not degrade over a historical horizon,
and do not require maintenance to refresh
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their physical properties over time. Cryptocurrencies
require a sustained amount of interest in
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them. This represents a major flaw in the
value of bitcoin and has relevance to some
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of the other points I will mention in this
video.
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The second point regarding the value of bitcoin
today, Taleb asserts that bitcoins real value
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is zero. He says that this is true as a result
of two factors, first bitcoin offers no explicit
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yield to its holder today. In other words,
bitcoin pays no dividend to its holder, it
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doesn t even have an aesthetic or artistic
value like jewelry might. In addition, there
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are very real scenarios in the future that
might make bitcoin worthless such as miners
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going extinct/losing interest, or the technology
becoming obsolete as result of some other
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better more efficient means of transaction/
store of value. Taleb s point here is that
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path dependence is critical when evaluating
assets. In the case of bitcoin, there are
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real, foreseeable, and highly probable events
in which bitcoin experiences extinction also
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known as an absorbing barrier. To quote Taleb,
If any non-dividend yielding asset has the
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tiniest probability of hitting an absorbing
barrier, then its present value must be 0.
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The third point I want to share is that by
definition for something to be a currency
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or numeraire it needs to be a benchmark that
maintains stability and against which items
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can priced without volatility. In contrast,
gold failed as a currency because of its periods
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of bubble-like speculation at different points
in history. Taleb argues that the closest
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thing we have to a numeraire is the currency
in which most salaries are paid and this makes
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because this is generally the currency at
every step in the supply chain including chains
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used to price good and services.
At the end of the paper, Taleb dispels a variety
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of myths regarding bitcoins potential as a
tail-risk hedge. He stated that it likely
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won t hedge your portfolio in case of a market
crash as seen by its performance in the March
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Covid decline. Furthermore, it won t protect
you from tyrannical government because we
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have already seen documented cases of the
US government tracking and recovering stolen
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bitcoin. And finally, it will not democratize
finance as hoped because most of the bitcoin
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in circulation is being hoarded by a very
small minority of bitcoin accumulators.
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As always, Taleb includes a variety of fascinating
examples and I strongly encourage my viewer
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to take a look at his paper, videos and twitter
discourse. If you enjoy content related to
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Nassim Taleb and finance then this channel
is perfect for you. Smash the subscribe and
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like button and I hope to see you here again
soon!
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