Cryptocurrency: The Blackest of Swans
Cryptocurrency: The Blackest of Swans by Louis Banese – Daily Reckoning
In his groundbreaking book, The Black Swan, Nassim Nicholas Taleb defines a Black Swan as follows…
“An event, positive or negative, that is deemed improbable yet causes massive consequences.”
With that in mind, is Bitcoin a Black Swan?
I emphatically answer in the affirmative!
Now let’s get even more granular.
Taleb says that all Black Swans have three characteristics…
#1 — “Blacks Swans are outliers, as it lies outside the realm of regular expectations because nothing in the past can convincingly point to its possibility.”
I’d say Bitcoin definitely satisfies this requirement. That is, unless you had gifted insights, and predicted a digital currency would emerge that operates beyond the control of any Central Bank and offers total anonymity.
#2 — “Black Swans carry an extreme impact.”
It’s impossible to consider any geopolitical event without also considering its impact on Bitcoin prices. So I’d say we’re good here.
#3 — “In spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and unpredictable.”
Since pundits have tried to rationalize the price of Bitcoin every day since the most recent explosion, put a check next to this box, too. I believe it’s official now…
Bitcoin is the biggest recent example of a Black Swan event, and such events can be infinitely profitable.
The world is clearly changing.
Ten years ago, cryptocurrencies were written off as a nerdy economics projects with no future as “money.”
After growing into a $150 billion market with some 900 currencies actively trading on major exchanges, it’s impossible to ignore them now.
Bitcoin and Ethereum have soaked up much of the press on cryptos as the two most valuable cryptos. And rightfully so, since they racked up gains of more than 300% and 3,000% on the year, respectively.
But here’s another point few people are making:
Rightly or wrongly, crypto is taking its place alongside gold, foreign real estate and other asset classes as a “safe haven” or “crisis hedge.”