What Nassim Nicholas Taleb of ‘Black Swan' fame gets Wrong - and Right - about Bitcoin

tech.hindustantimes.com:

 From a pure statistical viewpoint, Bitcoin looks like a very high volatility asset without strong medium- or long-term tendencies to trend or revert. It’s not a perfect random walk with future direction independent of past price movements, but it’s closer to one than most major assets such as stocks, bonds and commodities. This background is important for evaluating a Tweet by Nassim Nicholas Taleb of ‘Black Swan' fame that generated considerable attention: 'For a contagion driven asset with no economic anchor such as #BTC, a falling price does not make it ‘cheaper’ and more attractive. A falling price makes it less desirable &, paradoxically, more expense. Why? Because price is its ONLY information.'

This is not true empirically over Bitcoin’s short history. In the past, buying Bitcoin when the price was falling has been equally attractive as buying it when its price was rising. But Taleb made an economic claim, not a statistical one.  (I’ve known Taleb for 36 years and have learned much from him. I always find his comments provocative and usually right. I also own Bitcoin and other crypto assets.)

The first thing to note is that there are lots of other “contagion-driven” assets without “economic anchor.” Art, diamonds, gold and many other things have value only because other people value them, not from any direct economic use.

A particularly important contagion-driven asset lacking an economic anchor is the US dollar. Unlike Bitcoin, it has a strong tendency to trend. If the dollar’s value is falling due to inflation, it’s likely to continue to fall. No one buys the greenback because it’s cheap during inflation or sells because it’s expensive during depressions — it’s the opposite that happens. 

The dollar has something