Just how risky is it to invest in digital assets? The ongoing rout in crypto markets is destined to renew that debate. It’s not just a question for individuals and money managers, but also for national policymakers, who are trying to figure out how much protection to offer retail investors. The easier it becomes for mom-and-pop investors to put money into Bitcoin and other cryptocurrencies, the more Americans have access to investments that have made some people quite a bit of money—but the more they’re exposed to the uncertainties of a totally novel, and highly volatile, type of asset. This year, much of the policy debate has centered on the idea of spot Bitcoin ETFs . Several large asset management firms have applied to the SEC for permission to list such funds, which would invest directly in Bitcoin and could be bought or sold just as easily as publicly traded stocks. But so far, the SEC has rejected those bids, citing the lack of regulation in the market and “the potential for fraud and manipulation.” The debate took on a new dimension last month when Fidelity Investments, one of the world’s largest asset managers, announced that it would soon allow participants in its 401(k) plans to invest some of their retirement savings in Bitcoin. On Wednesday, that led Sens. Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., to send Fidelity a letter challenging the decision, pointing to Department of Labor guidance that warns of the risks such a move, and questioning whether Fidelity’s other activities — it has dabbled in crypto mining and offers crypto investments to institutional investors — create a conflict of interest. The issue is just how far crypto is going to be invited into the mainstream of the investing world right now. Retirement accounts represent huge pools of investment capital that could boost crypto markets — but are also among the most “vanilla” investment products out there, highly accessible and also strictly regulated for consumer protection. They aren’t meant to be easy parties to crash. *** If you get to the heart of it, the question being raised here is whether people who invest in Bitcoin are going to get — to put it politely — hosed. So now seems like a good time to check in on a rollicking inside debate over Bitcoin’s real worth. As it happens, Fidelity’s digital assets group has been one of the most prominent proponents of the view that Bitcoin, in particular, is extremely valuable. The outspoken risk analyst Nassim Nicholas Taleb has been among the most prominent promoters of the view that it is not. That’s why a short section titled “The Lindy Effect and Bitcoin’s antifragile qualities” in the middle of a recent 25-page paper by Fidelity Digital Assets caught my eye. The January paper lays out the view that Bitcoin is superior to other digital assets. This particular section argues that Bitcoin’s longevity compared to other cryptocurrencies makes it “Lindy,” or likely to last—and that the various shocks Bitcoin has endured (price crashes, exchange hacks, and so forth) have made the network stronger and actively resilient, demonstrating its “antifragility.” What the report doesn’t say is that both the “Lindy Effect” and antifragility are favorite pet concepts of Taleb, who shot to global fame when his 2007 book “The Black Swan,” warned of the need to prepare for catastrophic, unforeseeable risks just as the global financial crisis was unfolding. Fidelity’s use of those concepts was striking because last summer, Taleb made a splash in crypto circles with a paper of his own. It argues that Bitcoin is a bubble and purports to show that its true value is — bluntly — “0.” That one the world’s biggest asset managers and one of the biggest intellectual celebrities in finance have issued dueling manifestos tells you all you need to know about just why Bitcoin is so controversial, and so perplexing even to experts. Bitcoin advocates tend to act like it’s obviously a solid investment (of course this is the wave of the future), while skeptics tend to act like it’s obviously a blinking red light (of course a virtual, unbacked “currency” is just a scheme). The Fidelity-Taleb debate offers a window into why it’s so hard to know the answer. Taleb is the rare prominent figure who showed initial enthusiasm for Bitcoin before concluding it was bunk in said paper, which he published on Arxiv.org, an online repository for scholarly articles. The Boston-based Fidelity is the kind of place where doctors and lawyers park their retirement savings. It is not associated with the swagger of maverick hedge fund managers, let alone the disruptive online ethos of cryptocurrencies. But the firm moved earlier than other giants into crypto, in 2018, when it set up its Digital Assets group. Without naming Taleb, the Lindy section of Fidelity’s report rebukes him by resorting to his own favored concepts to bolster its case for bitcoin’s worth. In his paper, Taleb argues that Bitcoin is too price-volatile to work as a currency and that competition between fiat currencies along with traditional financial instruments provide sufficient opportunities to hedge against inflation. He argues, too, that for Bitcoin to have any value now, it must be immune to any possibility that it succumbs to hacking or other attacks at some time in the future—but it is impossible to rule out that some vulnerability will be discovered. He concludes that the blockchain is a nifty invention with little practical value, and that Bitcoin amounts to a “revenue-free bubble.” Taleb also invokes his favored “Lindy” concept to rebut the idea that Bitcoin is like digital gold: Precious metals like gold have been valuable for millennia, so by Lindy’s Law, we can expect they will remain valuable for centuries to come. On the other hand, Bitcoin, as a new technology, is likely to be replaced by a newer technology. Fidelity’s paper appropriates this idea in the service of its own view. The paper takes it as a given that digital assets are valuable, and points out that by the standards of digital assets, Bitcoin is the Lindy option, as it was invented first and still exists. Things happen quickly in the world of cryptocurrency — thousands have been launched in several years, and the vast majority have been abject failures. So by crypto’s standards Bitcoin is Lindy, though that may mean little in the span of human history. The Fidelity paper also lists a dozen attacks and shocks that Bitcoin has survived to date, arguing that the network is “antifragile” — also the title of a 2012 book by Taleb, which he cites in his anti-Bitcoin paper — has shown sufficiently that it will remain robust against future shocks. In the months since Taleb's manifesto first published, Bitcoin has roughly doubled, before losing all of those gains, and then some, but the lack of a true collapse looks like a point in Fidelity’s favor. In fact, the cryptocurrency’s market price has fallen by 80 percent or more three times, only to recover. The fact that inflation has remained elevated while Bitcoin’s price has plummeted looks like a point in favor of Taleb, whose paper casts doubt on its value as a hedge against rising price levels. Before the recent flap over Fidelity’s 401(k) plans, I asked both camps about their competing views. The authors of the Fidelity paper, Chris Kuiper and Jack Neureuter, assured me that their use of antifragile and Lindy was not intended as a response to Taleb. They swore they were not, as I suspected, “trolling” him, though they were certainly familiar with his white paper. Kuiper mentioned that people in Bitcoin circles had taken to calling the dreary document “the black paper.” Taleb told me he had not seen Fidelity’s paper, but said he wasn’t buying the antifragility argument. “If I had a dollar for every time someone told me something is antifragile that’s not,” he said, “I could own the entire Bitcoin stock." He doesn’t buy the argument that Bitcoin is Lindy, either. “Techno-Utopianism is not Lindy,” he said. “Neo-mania is the exact reverse of Lindy.” Taleb said he is no apologist for the existing banking system, either. He confided that he is working on a paper about the shortfalls of custodian banking, but declined to predict when he would publish it. In the meantime, the rhetorical volleys over Bitcoin’s value will continue to ricochet from here, and our expectations about who will argue, where and how will be continuously defied. That’s because cryptocurrencies defy easy categorization, and our old categories do not always hold up well in the new online spaces we increasingly inhabit.
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