Nassim Nicholas Taleb Calls Bitcoin a Tulip Bubble Without the Aesthetics | Hacker News Reader

Nassim Nicholas Taleb Calls Bitcoin a Tulip Bubble Without the Aesthetics

bloomberg.com

35 pointscratermoon102 comments

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?

Well said.

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.

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.

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.

>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.

Just because you majored in economics it does not make you smarter than the average Joe. Au contraire.

you forgot to end your post with /s

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.

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.

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.

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.

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.

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

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.

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

Isn't being able to have a clean house direct utility? Or the asset itself must have intrinsic value? (house can be lived in, gold can be used for electricity/nice things etc?)

I'm talking about the asset itself. You've just sold it for labor instead of currency.

There is an argument that 'good money' should have no utility value outside of being money. Gold and silver having a utility premium actually make them 'bad money' according to this same argument.

Yes and (non backed) currency experiences slow but exponential decline in value, even if you augment it with the short rate (tbills in the US), always going to 0. It's still used to settle transactions. All checks out.

Another part of the argument is 'good money' should not to be easy to debase. This is where 100% of Fiat currencies fail and Bitcoin succeeds.

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?

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.

>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.

> 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”.

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".

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.

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.

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.

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...

> 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_...

We came, we saw, he died

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.

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.

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.

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.

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.

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.

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.

> 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.

>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.

> Sounds like TSLA and many other publicly traded companies are bad stores of value according to that argument.

If you intend to have a serious and honest discussion on crypto then the very least you should do is go acknowledge the frequent crashes that result in halving their market value. For instance, BTC still hasn't recovered from the latest crash a few months ago, when it tanked to half it's value almost overnight.

Otherwise, these nin-sequiturs don't lead anywhere.

If you want serious discussion, you should first realize, that there's no "gold standard" of value and it is all relative. So there's not much difference in saying that BTC crashed 50% from its peak, from saying every other currency crashed 50% when BTC was at its peak.

"For instance, BTC still hasn't recovered from the latest crash a few months ago" it made new ATHs this week. I mean what do you people want, that it always stays at ATH every single ticking second? Zoom the f out ffs.

>For instance, BTC still hasn't recovered from the latest crash a few months ago...

Bad take, you obviously haven't seen the price chart in a while. BTC had new all time highs just a few days ago.

Tesla has halved and recovered multiple times as well. Feel free to put forth a better argument, this one is weak.

Stocks aren't supposed to be a store of value

Thanks to mismanagement of the US economy, debasement of the dollar, and 0% interest rates, stocks are now used as stores of value because it's impossible to beat the hurdle rate and stay liquid with any other asset.

Bitcoin fixes this.

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.

> 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.

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?

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.

> 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.

Many employers pay people in Bitcoin on request, tech companies like Square and LN Strike are making this easier to do. I can think of at least a dozen NBA and NFL athletes using these services to get paid in Bitcoin.

> I can think of at least a dozen NBA and NFL athletes using these services to get paid in Bitcoin.

A dozen! That is surely a threat to the US economy at large. You can rest assured that if this were to become commonplace for let's say, something in the range of a million workers, the government would outlaw it in no time.

>You can't ask your employer to pay you in anything else but the government-approved currency either.

>A dozen!

Don't move the goalposts when easily proven wrong. It's bad form...

They can't outlaw it without tremendous backlash at this point. Adoption is happening at the local/state level and starting to accelerate at the institutional level. Banks and public companies control legislators and many now have long Bitcoin positions...

The dollar and other government-backed currencies will always be in demand because even if you are paid in bitcoin your taxes are paid in dollars.

Sure they will unless Bitcoin is accepted as legal tender but even then, remember Gresham's law. People would rather hold on to 'good money' (Bitcoin) and get rid of 'bad money' (USD) if given a choice. So the majority will happily pay taxes in USD.

> 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.

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.

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.

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

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

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.

>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.

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.

tulip != turnip.

Turnip mania peaked with Super Mario Bros 2.

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.

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

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?

"Bitcoin will fail, it's just a matter of when" would not be considered an obvious opinion, or even an acceptable one, among most Bitcoin enthusiasts.

I think that even the most die-hard Bitcoin enthusiast will be aware of the fact that nothing lasts forever.

And for now Bitcoin seems to have outlasted the most recent asteroid impact. Seriously, any 'prophet' that tells you what will happen but not when is not worth listening to because they are just throwing out random stuff in the hope that something will stick. Which of course eventually it does. In NL we have a similar figure, one 'Maurice de Hond', he predicts stuff all the time, forgets his failures and accents his successes and people lap it up. It's embarrassing.

The Dollar wont last forever either. If I say “nothing will” it appeases the statement but it is just an obvious generality

Well, are you shorting precious metals that will be on the asteroid or what?

Absolutely. I'll milk that impact for all it's worth. Too bad I'll be too busy evaporating myself to cash in on it but for a very short while I'll be the richest man on Earth ;)

And I'll re-invest my riches into start-ups that aim to deal with very fast climate change.

https://www.youtube.com/watch?v=bU1QPtOZQZU

Applications are open.

I realize it's an aside from the point you're making, but the red flag for me is that a prediction without a timeline is meaningless. If someone says "the market will crash," and doesn't tell you when, then it's not a prediction.

That's exactly it.

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.

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.

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

> 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.

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

Did he say anything controversial?

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

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".

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

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

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.

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.

Emphasis here on “bit”

Oh I get it, I actually think it's a well written/funny joke. I'm just disappointed whenever Bitcoin/crypto comes up on HN that the top comments are usually very shallow critiques of it. It feels like often a lot of people are rallying around a really low effort comment just because it reaffirms their beliefs. Which in general describes social media :), but I usually expect more out of HN discussions.

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

He’s incorrect.

Please elaborate

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.

> Bitcoin is an inflation hedge

agreed. but so is any risk asset. Tulips as well...

> and a durable store of value.

Compared to USD its quite volatile. So in terms of inflation hedge + durable store of value I would much rather be in gold where daily or weekly fluctuations can be stomached.

> short term speculative

I think Taleb is saying bitcoin is a bubble like tulips were. The tulip mania lasted a few months or so. The fact that the bitcoin "bubble" has lasted longer does not in itself mean it is not a bubble. Only time will tell.

> Bitcoin has a value proposition outside of day trading speculators

I would argue that the vast majority of the reason for bitcoin's existence today is speculation and trading. We are 10+ years in and we still don't have a viable decentralized infrastructure based on crypo. In fact, the entire value of cryptocurrency is derived from centralized finance. Companies like Coinbase make a big splash about all this - but their market cap is derived from listing on the NYSE and their very business model is predicated on storing keys for everyone and being a central place for trading.

Explain to me how Bitcoin is any different than the meme stocks of today? (Gamestop, AMC and many more...). Bitcoin is the symptom of simply too much money on the sidelines. It is the monetary equivalent of the social amplification you get from making a tweet that suddenly goes viral.

In defense of crypto, I will say one thing: the creativity in the space is amazing. The pace of innovation, ideas and new concepts is heartening to see. What I expect from all this, however, is maybe 95% of it will disappear and we will remain with 5% of the innovation in the crypto space. I don't know what that 5% looks like - but it will probably be focused on the tech that disrupts existing payment structures and marketplaces - and less so about store of value.

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