Why is Nassim Taleb Wrong About Bitcoin?
In this interview with CNBC, the author of Black Swan and Skin in the Game books, Nassim Nicholas Taleb makes several arguments against Bitcoin as a currency or an investment tool. Prior to the interview, he also published an academic paper that details his arguments against Bitcoin (Bitcoin, Currencies, and Fragility). Since then, Nassim Taleb's arguments have been countered by many professional investors, Bitcoin developers, and financial analysts.
In this interview Nassim Taleb states:
"There is no connection between Bitcoin and inflation":
By comparing the CPI percentage (a metric used to measure inflation) to Bitcoin price between the years 2016 and 2021, we see that as CPI increases which reflects an increase in inflation, the price of Bitcoin also tend to increase, which allows us to say that Bitcoin has acted as an inflation hedge historically. The hard supply of Bitcoin which is 21 million coins gives a lot of investors comfort and peace-of-mind that their coins would not be devalued as a result of an unexpected increase in the supply of Bitcoin. According to the Economics Help, one of the main causes behind inflation is increasing the money supply with real output remaining unchanged. Since Bitcoin is programmed to decrease its supply output every four years, and the newly mined Bitcoins are programmed to come into circulation at a constant rate during the four year period before the decrease in supply, an increase or decrease in the supply of fiat currencies such as the U.S. Dollar can not affect the output supply of Bitcoin. Therefore, when the supply of U.S. Dollar increases and the output of Bitcoin remains unchanged, the price of Bitcoin would naturally adjust to adapt the increase in the supply of U.S. Dollar, which allows it to act as a great hedge against the inflation of fiat currencies.
Furthermore, according to Investopedia, "Inflation reduces the value of a currency's purchasing power, having the effect of an increase in prices." Therefore, another way to counter Nassim Taleb's argument against Bitcoin would be to show that Bitcoin's purchasing power has been increasing since 2010 while the U.S. Dollar's purchasing power has been decreasing.
This picture shared in an article published by Markets Insider visualizes the decline in the purchasing power of the U.S. Dollar due to inflation since 1913.
In 1913, $1 could buy 30 Hershey Chocolate Bars, in 1933, $1 could buy 10 bottles of beer, and in 2020, $1 could only buy 1 McDonald's coffee.
If we analyze Bitcoin's purchasing power since 2010 according to data from investing.com , we notice that Bitcoin's purchasing power has been increasing since then.
2. "I realized it was not a currency without a government, it was just speculation"
While Bitcoin has not been used as a large scale currency in the last decade, it has been making progress to be used a currency. In September 2021, El Salvador became the first nation to adopt Bitcoin as a legal tender, and it allowed it citizens to pay taxes in Bitcoin, buy properties, and pay for services. El Salvador also encouraged businesses to accept Bitcoin as a payment for products and services and provided them with the technical training to be able to utilize Bitcoin in their businesses. According to the president of El Salvador, Nayib Bukele, a third of the country's population is using Bitcoin, in fact, the number of Bitcoin users in El Salvador exceeds the number of El Salvadorians who have bank accounts. Moreover, Bitcoin is also being utilized by the city of Miami as a currency, Miami's mayor has decided to allow the city's employees to receive their compensation in Bitcoin rather than the U.S. Dollar, not only that, but he also received his own compensation in Bitcoin. While it is true that not every country and city utilizes Bitcoin as a currency, the presence of early adopters such as El Salvador and Miami is important for Bitcoin's progress towards becoming a global currency. According to Diffusion of Innovation Theory, the adoption of disruptive technologies and innovations does not happen simultaneously in a social system, but different people, communities, and market participants adopt at different times which leads to this curve:
Therefore, if we apply the Diffusion of Innovation theory on Bitcoin, it would be wrong to assume that if all countries and cities do not adopt Bitcoin as a currency at the same time, then its adoption as a global currency will not happen in the future.
Furthermore, many large businesses have also joined the innovators and early adopters and have decided to adopt Bitcoin as a currency and accept it as a payment for their products and services, listed below are 10 major companies that accept Bitcoin:
Microsoft
Paypal
Overstock
Whole Foods
Etsy
Starbucks
Newegg
Home Depot
Rakuten
Twitch