Bitcoin at USD 100000: A cautious note

On the one hand, we have Bitcoin dancing its way towards USD 100,000 and on the other hand, we have one of the greatest thinkers of our time, Nassim Taleb, waving red flags with great vigour.

Nassim Nicholas Taleb, author of "Fooled by Randomness", "Black Swan" and "AntiFragile", in his critique "Bitcoin, Currencies, and Fragility" (2018), argues that Bitcoin has a value of exactly zero for several reasons:

• Lack of Intrinsic Value: Taleb points out that Bitcoin does not possess any intrinsic value; it does not generate cash flows, nor does it provide utility in the form of dividends or interest. Its value is purely speculative. It's like buying air and hoping someone else will pay more for it tomorrow. At least with traditional investments, you're buying something that produces actual value.

• Volatility and Fragility: He highlights Bitcoin's extreme volatility, suggesting that its price movements are more akin to gambling than investing. Taleb points out that truly valuable systems should strengthen under stress, not crumble at the whisper of a regulatory tweet or a tech billionaire's mood swings.

• Scalability and Practicality: He critiques the practical use of Bitcoin as a currency, emphasizing its inefficiencies in transaction speed, cost, and scalability, which undermine its utility as a daily-use currency. Try buying your morning coffee with Bitcoin. Between transaction fees that might exceed your coffee's cost and confirmation times that could have you camping at the counter, it's about as practical as using gold bars for grocery shopping.

The crux of Taleb's argument is that Bitcoin's payoff in the long term is zero because it doesn't have the qualities that would make it a stable store of value or a reliable medium of exchange over time.

You can read the entire technical paper at the link provided above. But the point remains that bitcoin is rife with speculation. Its value is largely driven by what people believe others will pay for it in the future. And most are driven by the urge of quick multiple gains aka lottery.

But here's the fascinating part - despite these fundamental flaws, Bitcoin's price has doubled in the last 1 year with most of the gains concentrated in recent months.

Bitcoin: Is it a stock or a currency?

So, let's dive deeper into what Bitcoin really is (or isn't):

1. Is Bitcoin a Currency?

   • Imagine your salary being paid in Bitcoin. Monday you're a millionaire, Tuesday you're considering a second job at McDonald's. That's not how stable currencies work. A currency should be boring - Bitcoin is anything but.

2. Is Bitcoin a Company?

   • If Bitcoin were a company, it would be the strangest one on Earth - no employees, no revenue, no product except itself, yet valued higher than many Fortune 500 companies. It's like a company whose only business is convincing people its stock will go up.

3. Is it a revolution against the Banking System & Tyrannical Governments?

   • Yes, Bitcoin represents a technological rebellion against traditional financial systems. But revolutions don't usually require you to stake your life savings on their success. If you're buying Bitcoin to fight the system, just be honest that you're making a donation to a cause, not an investment in a productive asset.

Bitcoin's Identity Crisis: The 'Independent' Currency That Can't Stand Alone

The greatest irony of Bitcoin might be this: for something created to be independent of traditional financial and political systems, it behaves like a dependent child, constantly needing someone to carry it from one milestone to another. Think about its journey:

• It started with cyberpunk enthusiasts and tech evangelists holding its hand.

• Then came the era of Elon Musk, whose tweets could send Bitcoin soaring to the heavens or crashing to earth faster than a SpaceX rocket.

• The Winklevoss twins and other crypto evangelists kept it relevant through their constant cheerleading.

• More recently, the ETF approval gave it a new set of institutional training wheels.

• Now, it's riding on Trump's campaign promises about crypto-friendly policies.

This constant need for external validation exposes Bitcoin's fundamental contradiction. It's marketed as a revolutionary force meant to free us from traditional financial systems, yet it can't seem to maintain its value proposition without constant support from those very same systems and their prominent figures. It's like a teenager claiming independence while asking for an increased allowance.

Is this a Mother of all Bubbles?

While we think of all this let me also present another aspect - Bitcoin could. be the ultimate bubble. If history has taught us anything, it's that bubbles burst. From the Dutch Tulip Mania to the dot-com bubble, Bitcoin's trajectory is eerily familiar. The pattern is always the same: "This time it's different" until suddenly it isn't. Bitcoin's price trajectory isn't tracking technological adoption; it's tracking human greed and FOMO (Fear Of Missing Out).

So, what's the rational approach?

1. Treat Crypto Like Fire: Fascinating to watch, useful in small doses, dangerous if it gets out of control. If you must participate, do it with money you can afford to lose entirely.

2. Remember What Money Is: Money's job is to be stable, widely accepted, and maintain relatively consistent purchasing power. Bitcoin, for all its technological innovation, fails at these basic functions.

3. Invest in Value Creation: Instead of betting on digital tokens, consider investing in businesses that solve real problems and generate real cash flows. Boring? Maybe. But boring has made many billionaires.

The true irony? The more Bitcoin's price rises, the more it proves its critics right - it's driven purely by speculation rather than fundamental value. While Bitcoin believers see current prices as validation, they might actually be watching the ultimate bubble inflate in real-time.

And yes, crypto enthusiasts will say I "just don't get it." But understanding human nature and market psychology is more valuable than understanding blockchain technology when it comes to protecting your wealth. Sometimes the best investment strategy is simply avoiding the latest gold rush, even if it's digital.