Lyn Alden and Nassim Taleb are two of the brightest minds I follow on Twitter. They are on opposite sides of where they believe Bitcoin is headed. How about a debate? 
Here is the Tweet that triggered my proposed debate.
There were some interesting replies, let’s look at a few.
Replies to Taleb
Regarding manipulation, we can easily dispense with a comparison to the US dollar.
The bigger and more liquid a market is, the harder it is to manipulate. The US dollar is therefore one of the least manipulated markets and quickest to recover when there is manipulation.
The preposterous official rate of the Venezuelan Bolívar is of course a joke. The real rate of the Bolívar is set by the black market. But is the black market rate more manipulated than Bitcoin?
Skin in the Game
I like the question by @Brubble: “Where is your skin in the game?”
I don’t believe one needs a position to comment or for such comments to be valid if there is no skin. But that has been the past take of Taleb.
Skin in the Game: Hidden Asymmetries in Daily Life is a best-selling book by Teleb.
MishTalk TV with Gary Brode on the Grayscale Bitcoin Trust
On September 3, on MishTalk TV with Gary Brode, we discussed the Grayscale Bitcoin Trust
There is an arb opportunity, but also a big risk. I am agnostic on Bitcoin.
I do not know where it is going, nor does anyone else. The massive number of people who believe they do know where its headed is amusing.
Lyn Alden is not in that camp. And she makes a very pragmatic, unemotional, hypeless case.
Twitter Discussion With Lyn Alden
Fundamental Flaw of Bitcoin
The fundamental flaw of Bitcoin is that other than trivial use as barter, Bitcoin requires conversion to fiat to use.
I do not believe anyone has made that point, at least as succinctly.
If the US banned bitcoin transactions, what could you do with it?
No one will physically take your Bitcoin away. So you keep it. Lovely. Try buying a house or a car with it. Heck, try buying a candy bar with it. You can’t or won’t at least in the US, if the Treasury department would ever ban transactions. No US merchant would take it. The ECB sheep would likely go along.
The Fed, Treasury, and ECB have plenty of made up excuses on deck: Money laundering, fairness, tax evasion, whatever. It doesn’t matter. Governments could tax the heck out of it, destroying any alleged wealth.
I used to think that was highly likely. Now I am unsure. If the Treasury or Fed never feels threatened by Bitcoin, it will leave it Bitcoin be.
And the longer Bitcoin goes nowhere, the less threatening Bitcoin is.
A Word About Supply
The supply of Bitcoin is constantly rising. People confuse supply with the rate of increase in supply, two vastly different things.
The supply of Bitcoin is ever Bitcoin ever mined, minus the lost keys. This is quite similar to gold. The supply of gold is every ounce mined, minus what has been lost at sea, buried and forgotten, and minus tiny amounts used in products now sitting in landfills never to be recovered.
Much hyped halving is basically irrelevant. The day before halving and one year later have this is common: Every day (second actually) someone has to decide whether to hold Bitcoin, dollars, gold, or something else.
There is no increase in demand due to halving. The next halving is expected to be in April or May of 2024. The increase in supply from mining will fall from 6.25 Bitcoins to 3.125 Bitcoins. So what?
There are roughly 19,413,325 Bitcoins in existence. That is about 92 percent of the total supply ever. The next halving is meaningless to the total supply.
With total supply nearly set, what determines the price of Bitcoin is from here on out is dependent on the desire to speculate on it, plus possibility of meaningful government action or fear of government action.
Factor in the Bitcoin Whales. Every step of the way there is increasing incentive to cash out rather than hold something that could conceivably hit $10,000, $4,000, or even zero.
Demand from Nigeria or all of Africa is meaningless vs the massive supply elsewhere.
Bitcoin is Worth Zero Says Taleb
Downloadable PDF
Lyn Alden
I have been labeled an “enemy of Bitcoin”. What a hoot.
I am agnostic. But I do point out that Bitcoin is a free market construct, and the SEC looks foolish in its battle to keep it off the exchanges. There is an arb opportunity, with risk, for those willing to take it. None of that remotely makes me an enemy.
There you have it. Three competing views.
If you want a well-presented view on the case for Bitcoin, please consider A Century of Fiscal and Monetary Policy: Inflation vs Deflation by Lyn Alden.
Now, bring on the debate. Anyone interested?
I proposed mud wrestling between the two….
There is no way to decide what is marketable and what is not.
Gold is seen by many to be a useless superstition, buoyed only by people dumb enough to trade it.
In ancient (and small-scale) societies, virtually all day to day trade was done on the basis of credit, sometimes denominated in grain, even when silver/gold were used for remote commerce and war.
I once read about a Russian saying:
Pity the rich, nothing to eat than gold.
Lucky for them the peasants have pity and give them bread in exchange.
I would say the fundamental flaw of Bitcoin is that its usefulness derives from decentralized banking (which is simplistic), while it’s hyped for its status as a “currency”. The currency is broken in its inception. It creates artificial scarcity where the substance itself is artificial. The only thing the “blockchain” does for Bitcoin is create a redundant transitionally consistent database that ensures the system will never die unless all copies are erased or no one ever uses it again. Blockchain is a separate thing from Bitcoin.
What annoys me about Bitcoin enthusiasts is that, as a community, they don’t seem to understand that BANKING is far more important than “currency”. Mish’s recent article about 100% reserve banking touches on the subject.
What is needed, is a scenario where all participants in a decentralized payment system themselves have the “reserves”. A payment system could be developed between these reserve-holding participants. When you want to withdraw from the system, you clear/withdraw through your nearest-neighbor. The original Ripple system developed by Ryan Fugger (now the Ripple I.P. belongs to the XRP folks) was closer to the solution than Bitcoin. All that is was missing was an algorithm/protocol for cashing out.
Frederick Hayek’s work in the paper “The Denationalization of Money” I believe was also along these lines.
Anyway, the fundamental flaw of Bitcoin, to me, is that is hyper-focuses on currency instead of banking. We ought to develop a decentralized multi-currency banking algorithm that simply allows participants to transfer whatever the local currency happens to be (or potentially other assets). But instead we are hyper-focused on algorithms to represent value, and not so much for transferring it. It’s not even economically complicated, but again, people are hyper-focused on currency, not banking.
“It creates artificial scarcity where the substance itself is artificial. The only thing the “blockchain” does for Bitcoin is create a redundant transitionally consistent database that ensures the system will never die unless all copies are erased or no one ever uses it again. Blockchain is a separate thing from Bitcoin.”
Many insist that blockchain cannot be separated from Bitcoin.
But I love your statement “Bitcoin creates artificial scarcity where the substance itself is artificial.”
I think all the talking points have been said.
It’s a matter of value to humans. If humans value it, it has value plain and simple. It is one of the things that makes humans different. One of the very few things. We will happily hold an item that we don’t care one little bit about, so we can trade it for something we do want. That is why bitcoin can exist.
The utopian world of bitcoin sounds great until you realize that excessive money becomes power and all you will do is trade one set of overlords for another if it really happens. It solves nothing and will only create more chaos.
I really like Lyn Alden but Bitcoin is where I disagree with her. However if one government taxes/bans Bitcoin and another government allows Bitcoin, then Bitcoin will be converted to fiat where it is allowed and then exchanged for a different currency.
The halving affects the reward that the miners receive for keeping the Blockchain running. As the reward drops then Bitcoin transactions will become more expensive.
Reading the comments confirms what I notice first-hand among people I know: most people see bitcoin like a shate of Tesla stock, a short-term option, or an ounce of gold; most people don’t see the ways in which its characteristics incentivize human behavior. And that’s okay. Adoption is still going to grow, regardless of price or even price regardless, though increasing value, measured by whatever means, certainly does play a big role at this point in time. If or when btc is ubiquitous to everday transactions, ownership may measure as much as price.
You have no idea if adoption will grow and if so at what price.
Nor does anyone else.
The results speak for themselves.
https://charts.woobull.com/bitcoin-vs-gold/
I’d like to see Dutch tulip bulbs, circa 1636 against both, I assure you the Tulips win.
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As a thought experiment could we see the Brics using Bitcoin for transactions among themselves? In principle they could all recognize Bitcoin as legal tinder and if used for enough transactions it would solve the convertibility problem and there would be not need to have it backed by gold.
Now the drawback is that if it catches on the supply of bitcoin could not expand enough leading to demand outstripping supply leading to a rise in bitcoin’s value. This would certainly cause hoarding and a drop in free bitcoin circulation.
Is there a way around this problem? Maybe but it would require the setting up of banks that deal in bitcoins and would need to be capitalized in bitcoins. That’s one problem and we have seen that several “banks” or “exchanges” have filled this void and just about all ended up as scams because in an unregulated environment where face to face transaction are non-existent the tendency to cheat becomes overwhelming.
Now we have the remaining exchanges screaming to be regulated but the Fed and the US have no reason to be the regulator especially if it is the Brics that ask for it. China and Russia are the obvious choices but there are significant problems. They would have to be the bank lender of last resort of a money, bitcoin, that they don’t control which is problematic to say the least but it could be done as long as they put their reputation on line to support bitcoin no matter what and in every condition. To be brief they would have to put bitcoin at the same reputation level as their own currencies. Now we turn a full circle because for bitcoin to work with Brics if you need it to be backed by Russia and China to the same level as their national currencies then you might as well trade in Rubles and Yuan instead of setting up a whole new system to duplicate something that already exists. I suppose that would be true for whatever currency the Brics try to set up to avoid the Dollar.
Just a thought experiment to pass a boring moment.
Precisely what transactions do the BRICS do among themselves?
Any?
Trade is between individuals not nations. The US has some 5,000 sanctions on people and companies. Any digital currency or even hard currency that avoids SWIFT will suffice.
The US can more easily track Bitcoin than say a digital yuan.
That’s an interesting thought experiment. The US could outlaw/tax to death bitcoin, yet if bitcoin was deemed a currency in Asia (for example) then bitcoin might be successful.
YES, Indeed.
Not a crypto fan. But that’s just me. There are markets and investments for all types of investors. If you understand bitcoin and want to hodl it, I say “go for it”. And best of luck!
I admit to nibbling at bitcoin and ethereum with very little to show for it. But then, I don’t yet fully understand it.
I prefer to invest in what I can understand. I know the world needs more energy; fossil fuels in particular. So that’s where my investment focus remains; for now.
Good luck crypto fans.
Cryptos are very useful for money laundering and capital flights. This market has a real value. Illegal activities of mafias, arms trafficking, etc amounts to trillions of dollars in the world.
If anyone thinks the USA government will allow another currency (Bitcoin) compete with the dollar they have rock’s in their head. Only a matter of time before all these coins are banned. Then the government will come out with their own.
Well, yeah, there’s that little thingy in the Constitution about the minting and valuation of money (Article I, Section 8, Clause 5), I’m not entirely sure why this hasn’t come up in D.C., aside that political risk of being the bad guy who takes away the toy.
Bitcoin reminds me of tulip mania. It’s a virtual tulip bulb wrapped in an algorithm and hyped to greater fools. There is no scarcity as witnessed by the explosion of crypto currencies. And the government could kill it easily if it wanted to. I’m sure the NSA is on top all this stuff. Money is what the government says it is and it isn’t going to give up its monopoly. For the time being, it’s just letting this experiment run.
I’m more interested in Taleb’s medical practitioner comments over the past 3 years.
False!
“There are roughly 19,413,325 Bitcoins in existence. That is about 92 percent of the total supply ever. The next halving is meaningless to the total supply.”
People who repeat this totally fallacy do not understand the code or history bitcoin, or the extreme and fractious politics and costs of running, controlling and securing it.
FWIW: First began studying bitcoin at 10c, average cost $300, background in tech and coding.
What a hoot. I posted a Mathematical truth
Anyone who denies my supply statement is an economic illiterate. It’s as simple as that.
To reiterate: The next Halving is meaningless to supply, immediately and forever because the maximum increase in supply over many decades is only 8 percent.
Fact Check Q: What if Bitcoin mining ceased tomorrow? What would the supply be?
Fact Check A: the same as today, roughly 19,413,325 Bitcoins in existence.
The supply of Bitcoin at any time = the number of bitcoins ever mined, minus lost keys. So 19 million is on the high side, perhaps the lost keys takes it to 15 million or so.
That’s a mathematical fact, whether you agree with it or not.
It’s clear you are clueless what the word supply means.
19 empty cups or 19 million empty cups still hold no water.
Bitcoin is a massive game of liars poker, no real use, no tangible product, no earnings.
Nothing but a worldwide ante without regulation or transparency, where “hodlers” hope for next greater fools to buy them up, my guess is the greatest beneficiaries of bitcoin are sanctioned oligarch’s.
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lol.
Well, prove your statements so we can all evaluate your post. Thanks.
Mish,
I am always amused that you always choose to write about bitcoin after it has had a correction.
I did not see you write anything as it went from $16,000 to $32,000 recently.
Your coverage on bitcoin has been bearish the whole way up.
Yet you say you are agnostic.
An agnostic person would at least comment on how bitcoin has performed in the last 10 years versus other financial assets.
Would like to hear your reply to this
Sincerely
Let Mish Prove He Is Agnostic on BTC
My post today was in response to a Tweet by Taleb
My last post was an arb opportunity that requires at least a stable price of Bitcoin to succeed.
Hmm I seem to recall posting on Bitcoin at 40K, 35K, 20K, not sure I posted on Bitcoin at $15K. But if so, only one of those was a bottom.
Absolutely! Both sides need to be heard, delivered by experts!
“I do not know where it is going, nor does anyone else. “
I know that bitcoin will go up and down as it is a free market construct just like any other instrument like the USD, gold, oil, copper, bonds, stocks, etc so there is money to be made and money to be lost just like any other investment.
The mere fact that world economies are becoming fully digitized is reason enough to be involved, even if on a small scale, in this digital currency realm but it’s really only for the cool kids.
Got GBTC?
I think I would have more fun betting on the NFL.
Does BTC fall into the realm of gambling, speculation, or investment?
Multiple parties blindly placing their money into an ante, hoping to stay in long enough to make gains before others get out, no fundamentals, no earnings or P/E.
In poker and the NFL, at least you incorporate some level of skill for the win.
There are people in the world that don’t own or trade gold, that doesn’t mean gold has no value. Gold has no P/E, pays no dividend, and no earnings.
I would put bitcoin, right now, as a speculative investment but it can evolve over time. Some countries, El Salvador, have made it legal tender but it doesn’t seem to be working out (just yet). There was another one but I don’t remember which one it was.
https://www.fudzilla.com/news/57565-el-salvador-s-bitcoin-experiment-failed
If anyone doesn’t like bitcoin don’t buy it or trade it but more importantly let other people do whatever they want with their money, that’s what freedom is all about.
Lynn wins. Hands down.
Who provides the lard trough for N95 Nassim?
Fake, unbacked money is still fake unbacked money no matter who controls it. Money is gold, and nothing else. But madness of crowds can go on longer than you can short fake money.
The US dollar IS backed. It’s backed by the productive capacity of our society, the stability of the US, and the rule of law. A paper $100 dollar bill can be exchanged at most any store for goods. A 2 1/2 gold peso or 1 ounce American eagle coin would elicit only passing interest, and be useless in purchasing anything, until one sold the coin and converted it to US dollars.