Taps Coogan – April 26th, 2021

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Legendary trader, risk analyst, and author, Nassim Taleb, recently spoke with CNBC and denounced Bitcoin as an “Open Ponzi” scheme and described it as failing as a currency due to its large price swings.

Once relatively bullish on cryptocurrencies, Nassim Taleb has clearly soured on the concept noting:

“It has characteristics of an open Ponzi. In other words, everyone knows it’s a Ponzi. Basically, there is no connection between inflation and Bitcoin. None. You can have hyperinflation and Bitcoin go to zero. There is no link between them. It’s a beautifully set up cryptographic system. It’s well made but there is absolutely no reason it should be linked to anything economic…”

“The best strategy for an investor is to own things that produce yield in the future… In other words, you can fall back on real dollars coming out of the company, plus with tail risk hedges. There is no other alternative and these gimmicks… come and go…”

“I thought that Bitcoin… was going to be a currency in the sense that it is something you transact with. It proved to be too volatile and turned into a speculative tool… I was fooled by it initially… Something that can go up 5% in a day, 20% in a month, up or down, cannot be a currency. It’s something else. It’s like tulips…”

If Bitcoin was measuring the risk for the inflation induced loss of fiat purchasing power, it would presumably track changes in real long term treasury rates, just like gold does. If the inflation adjusted yield on ‘risk free’ treasuries go up, all things being equal, the value of a non-yielding non-fiat monetary asset should go down and that’s exactly what tends to happen with Gold.

While some have pointed to Bitcoin’s recent outperformance of Gold as evidence that the latter has started to fail in its role as the primary non-yielding, non-fiat monetary asset, the opposite is true. Gold is doing what it is ‘supposed’ to do. Get worried about Gold’s role in finance when it stops tracking risk-free inflation adjusted long term yields (or start worrying about your ‘risk free’ and ‘inflation adjusted’ benchmark).

Bitcoin’s meteoric rise over the last six months means that it is measuring something other than fiat debasement or inflation fears. That something certainly seems to be the excessive stimulative ‘juice’ washing over financial markets and society at large.

Looking for a peak in bubblelicious market euphoria? Keep an eye on Bitcoin.

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