Nassim Taleb calls Bitcoin a “tumor” attributable to low interest rates

by James · September 21, 2022

Author and risk analyst Nassim Nicholas Taleb took aim at cryptocurrency in a recent television interview, arguing that the continued relevance of Bitcoin and other blockchain assets was an accident of a monetary policy that has led to many assets being grossly overvalued.

Speaking on CNBC’s Squawk Box, the renowned probabilistic philosopher reiterated his belief that Bitcoin should be valued at zero in unsparing language, alleging that the cryptocurrency’s continued value is a “tumor” fueled by overly loose monetary policy.

“Bitcoin is still in use. It’s still at 20,000; it’s not at, you know, at a thousand or zero. So we still have things that need to be fixed.”

When asked if Bitcoin was a “signal”, Taleb responded in perhaps his sharpest comments on the cryptocurrency to date.

“I call it a tumor. There is something that produced this tumor … real estate is another tumor.”

The Arabic-speaking statistician attributed the “tumor” largely to the policies of the Federal Reserve, which he claims has created an economy where many assets are vastly overvalued relative to their ability to deliver long-term profits.

“I think we’ve had 15 years, 14 and a half years of Disneyland basically destroying [the] economic structure. Think about it — no interest,” Taleb said in the Squawk Box interview.

“The Fed overreached by cutting interest rates [sic] too much. The first hundred basis points work, the others much less so; with zero interest now, of course, for a long period of time, you hurt the economy, you create bubbles, you create tumors like Bitcoin.”

Although Taleb was unequivocal in his assessment of cryptocurrency, he has not always been so critical of blockchain assets. In 2020, Taleb expressed support for cryptocurrencies, advising the people of his native Lebanon to “[u]see cryptocurrencies!” as a means of circumventing the Lebanese government’s restrictions on remittance payments to the country in foreign currency.

The source of Taleb’s current opposition to cryptocurrency can be traced to a dispute with Coinbase’s customer support in June 2020, which culminated in the investor closing his Coinbase account. In the following February, Taleb claimed to have sold all of his cryptocurrency assets, calling Bitcoin a “failure” because it was too volatile to function as a viable currency.

At first glance, cryptocurrency would seem incongruous with one of Taleb’s favorite concepts – the so-called “Lindy effect”, which the Arab pundit popularized and designed with mathematical rigor. The Lindy effect states that one is more likely to encounter a non-perishable entity or institution towards the middle of life than at the beginning or end, and therefore those things that have persisted for a long time are likely to persist into the future for an equal length of time. This principle may explain some degree of heuristic prejudice against cryptocurrencies, none of which can boast a longer lifespan than a typical high school student.

Therefore, it is perhaps not surprising that Taleb has switched to a broad skepticism about cryptocurrency, which he now claims has an expected value “no higher than zero”. Last year, the Black Swan author published the paper “Bitcoin, Currencies, and Fragility,” in which he argues that cryptocurrency technology fails to solve the problems it claims to solve.

Curtis Yarvin, founder of the decentralized internet platform Urbit, agrees that monetary policy can be responsible for the wild swings in the price of cryptocurrencies, although he expresses greater agnosticism about the possibility that the value of Bitcoin could fall to zero.

“I agree that loose money makes Bitcoin possible,” Yarvin told the Epoch Times.

“Loose money means ever-increasing debt, covering structural losses in a structurally unsound economy.”

Yarvin, who is perhaps best known for his monarchist political writing and frequent podcast appearances, has maintained a long-standing interest in monetary policy, and has similarly been critical of the Federal Reserve’s precedent of a zero interest rate policy, as has been done by the central bank. only recently started to pull back in the face of rising inflation.

But unlike Taleb, Yarvin is more optimistic about the longevity and potential benefits of cryptocurrency, which he attests could become more valuable in the long term as loose money becomes inevitable for central banks, creating demand for less easily manipulated stores of value.

“I think the tumor has a future because I don’t see any way for this economic system to escape loose money,” Yarvin added.

Yarvin has emphasized the propensity of crypto winters to deter casual and unwary investors, causing panic selling among those he believes are not truly saving in cryptocurrency.

“In periodic spasms, the tide goes out and we see who is swimming naked. Everyone swims naked, they have no choice. But these contractions cannot be sustained, because they are too painful. This is why it is often a good idea to buy in a contraction winter.”

An inquiry from The Epoch Times about Taleb’s comments was forwarded to the Lebanese intellectual by his associate Paul Skallas. Taleb, whose criticism of journalists is well documented, responded by writing to Twitter a screenshot of the inquiry and link to the bitcoin black paper. Despite the subtle jibe, Taleb did not directly respond to the request for comment.