Critique of Bitcoin

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Excerpt from “Safe Haven” book by Mark Spitznagel

Some would say that cryptocurrencies, like bitcoin, are taking gold's place in that function. But are these modern inventions really safe havens?Cryptocurrencies' safe haven payoff profiles are currently too sparse and too noisy to even evaluate intelligently (though the early indication is that they look more like unsafe havens). By that alone, they are hopeful havens at best. (Lazy Nana, posing as a groundhog killer!) Time will tell.

But cryptocurrency enthusiasts have their heads in the right place. Cryptocurrencies are thought of as insurance policies against the failure of central bankers. This, by extension, has also given them the presumed role of being an insurance policy against economic crises—since, at this point, that would entail the failure of current monetary policy.

Cryptocurrencies are a most significant technology platform (the blockchain). They are like secure, virtual safety deposit boxes that only you can access. The box is the thing that's so cool and impressive, and worthy of our respect. It will change the world. But the stuff inside those boxes, just by virtue of the secure, convenient, cool boxes, is now presumed to have value—by decree or, dare I say, by fiat. (The economist Robert Murphy has even argued that in Mises's framework, we have no choice but to call crypto fiat currencies.)

Moreover, bitcoin isn't even ultimately anonymous; the technical term is that it's pseudonymous, meaning that the owner of each bitcoin is public knowledge at any moment, although it's not obvious which human is tied to each address. But it's quite traceable, nonetheless. Worst of all, as a highly speculative vehicle, it is a symptom of (and, I would argue, even inseparable from) the liquidity‐fueled environment that created it. All that glitters isn't gold.

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,”

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