Learning Our Terms: "Antifragile"
Bitcoin's Greatest Feature Also Poses Its Greatest Threat
I included each Tweet from the Tweet thread above, because, if you’ve held your digital assets through this crash, Pal’s perspective here should be comforting. I like to refer to Raoul Pal as “Papa Raoul”, because he always knows exactly what to say to calm us newbies down and to offer some much needed perspective in times of crisis. So, before I get into the meaning of this word “anti-fragile” that he used in the last Tweet of this thread, let me first share with you two charts that Papa Raoul shared just after this flash crash.
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According to these charts, Bitcoin is doing exactly what it did during the previous two bull market portions of its four-year cycles. Does that mean that we should be 100% sure that we have four to six months of upward price momentum ahead of us? Not necessarily. But if the market continues to follow historical trends, it is highly likely. However, my point in writing today is not to provide you with a dose of “hopium” (maybe we’ll get to the meaning of this term in another “Learning Our Terms” edition of the newsletter), but to explain the term “antifragile” and to offer some thoughts on how Bitcoin’s “antifragility”, its greatest strength, is also its most threatening quality to the powers that be.
Let’s start by understanding what the term “antifragile” means.
The term “antifragile” was coined by mathematician, essayist, and New York Times best selling author, Nassim Nicholas Taleb. His 2018 masterpiece, Antifragile, was named after the term. I read Antifragile this past January, and it very much reshaped how I view money, politics, and systems in general. Before getting into that, though, let’s define the term. According to Taleb, antifragile entities
“benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors.”
Antifragile entities are
“the exact opposite of fragile…Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”
Throughout the book, Taleb makes the distinction between the fragile, the robust or resilient, and the antifragile. The fragile can be considered anything from a delicate piece of glass to the
“new class of inverse heroes, that is, bureaucrats, bankers, Davos-attending members of the I.A.N.D. (International Association of Name Droppers), and academics with too much power and no real downside and/or accountability” (Taleb).
“Fragilistas”, as Taleb calls these types of people, include the likes of the chairmen of the Fed, “planners” who work for large international aid organizations (I spoke about them in this article), and the likes of Paul Krugman (who capitulated in regard to his stance on Bitcoin this week). These fragilistas are people who make decisions for others, but who don’t really have any skin in the game on the ground level, which, therefore, insulates them from the pain that they may cause those for whom they make decisions. Uber-fragilistas, or “interventionistas”, as Taleb also calls them, like Jerome Powell, Ben Bernanke, and Alan Greenspan love to intervene in financial systems. They prevent almost any corrections in the “free market” from happening by constantly injecting money into it at any sign of a downward trend. All of this money/intervention fragilizes the system, which leads to inevitable bigger and bigger corrections that require more and more bailout money (e.g., the market crashes of 2008 and 2020). “The market” can no longer survive without The Fed feeding it antidepressants. Our legacy financial system has become a house of cards because of these fragilistas - these spineless hypocrites.
The robust or resilient is something as simple as a hard cover novel. You can drop a bowling ball on it and it may dent the cover a bit, but for the most part, the book still serves its purpose and remains intact. The book is basically no better or worse off than it was prior to the trauma.
And then we have the antifragile. According to Taleb, Mother Nature is antifragile. It continues to find a way despite the harm we inflict upon it. As Taleb puts it,
“In its billions of years it [Mother Nature] succeeded in getting here without much command-and-control instruction from an Ivy League-educated director nominated by a search committee.”
Taleb also discusses how
“Switzerland is the most antifragile place on the planet; it benefits from the shocks that take place in the rest of the world,” as it is a safe haven for assets, especially during financial crises.
Taleb argues that the reason is Switzerland has been so stable for so long is because it does not have a large central government. Taleb explains that
“What governs them [Switzerland] is entirely bottom-up, municipal of sorts, regional entities called cantons, nearly sovereign mini-states united in a confederation.”
Taleb argues that people are very politically active at these canton levels. These people have skin in the game, and the political decisions that they take part in making directly affect their lives. The decentralized nature of Switzerland, Taleb argues, is what keeps it so stable. And this brings us to the broader theme of Antifragile. “Antifragile” entities tend to be decentralized in nature. Mother Nature is decentralized. Switzerland is decentralized. And, you guessed it, Bitcoin is decentralized. (One could argue that blockchain technology itself is decentralized, but that isn’t always entirely true. “Proof of work” blockchain technology - e.g., BTC or LTC - tends to be more decentralized than “proof of stake” blockchain technology - e.g., ETH or ADA. More on that here.)
So, how has Bitcoin proven its antifragility this past week or two? Well, it experienced an onslaught of attacks from the world’s richest man, the mainstream media, the nation-state, and even the Church. These attacks triggered a sell-off that triggered the liquidation of highly leveraged traders that triggered a sell-off by newer whales and newer retail traders (what some call “weak hands” in the space). (For more on how these attacks are coordinated, I highly recommend the following Tweet thread, written by someone who used to coordinate these attacks for a living. Really, really shady stuff.)
And now the price of Bitcoin is on the rebound - without the help of The Fed or any institutions staffed by all-knowing fragilistas. And this, ladies and gentlemen, is why Bitcoin is “anti-fragile”, as Raoul Pal put it. Not only did Bitcoin shake out speculators and “weak hands” before bouncing back (somewhat) unassisted, but it also shook Bitcoin miners out of China, the region of the world that uses the least amount of renewable resources to mine Bitcoin, in the process. All in all, pretty remarkable considering the pits of despair and depression we’d entered just a few days ago.
So, this is great, right? In theory, yes. However, I still stand by what I wrote in this edition of the newsletter. Bitcoin is only in the early stages of the fight with the centralized powers that be. Admittedly, I felt like a bit of a tin foil hatter wearer when I wrote the last edition of the newsletter, but then none other than legendary investor Ray Dalio spoke up this week to not only endorse Bitcoin and to share that he now holds some, but to state that
In this piece, Dalio discusses how the appeal of higher returns from cryptocurrencies may tempt investors to choose to invest in them over bonds. If institutions stop buying bonds, governments lose their ability to raise money (i.e., their ponzi scheme is up), which is, as Dalio puts it, “an existential risk” for nation-states. Michael Burry, famous for being one of the characters on which The Big Short is based, also spoke out recently about how he likes Bitcoin, but that
Bitcoin’s future is “tenuous” as “its biggest adversary is central governments”.
So, when I write about their being a rocky road ahead for Bitcoin, this is what I am talking about. I listen when people like Dalio and Burry speak. I want to believe that they are wrong for a number of reasons, but I respect their experience in markets and their understanding of them. For this reason, I pay heed to what they have to say, whether I agree with it or not. But I also keep in mind that people like Dalio, Burry, and even Elon Musk like to create noise and distractions for various reasons. So, instead of letting the noise get too loud in my head, I pay attention to the signal, which is that two of these three brilliant minds have publicly announced that they hold Bitcoin either personally or on the balance sheets on their companies. There is something reassuring about this fact - at least for the time being.
Shout Out to an “Antifragile” Student of Mine
Some of you may not know this, but I am a lecturer at Baruch College (CUNY) in New York City. I teach writing courses. In the midst of all the digital asset market chaos this week, I received some very excellent news from a student of mine. The final paper that she wrote for my course last spring was not only published via one the college’s online publications, but it was just selected as one of three winners of an award for excellence in writing. I have obtained permission from the student to share both her award-winning piece and her story, as I feel her story only makes the fact she won this award worth celebrating even more. She had dropped out of college after being attacked on campus (not Baruch) years ago. It took her years to gain the courage to come back to school. The semester during which I had her as a student was her first semester back and she was a bit unsure of her abilities as a student. Still, she gave her all to each assignment, which resulted in her final paper for the class not only being worthy of publication, but winning this aforementioned award. So, big shout out to Roshelle for not only bouncing back from a very difficult situation, but for thriving despite said difficulty. This was some of the most heartwarming news that I’d received in quite some time. Please check out her piece on the natural hair discrimination that Black women face here or at the link above.
Best,
Frank
Twitter: @frankcorva
Not that I don’t love the macro stuff - I do. But I’m not sure people are balancing things out there especially in Twitter land. Raoul Paul is like the sun in some ways. Needed for life on planet crypto maybe, but I’ll go blind if I stare at the sun, etc. Need more immediate concerns addressed beyond to what extent the market will survive.
One thing I like about Sheldon on Crypto Banter is that he is focused completely on maximizing financial gain while trying to keep leverage at a low. HODL isn’t for the desperate, and influencers such as himself are trying to cater (I think as responsibly as we could hope for) to the desperate. I am personally annoyed with the format of that show at times (I hate the entertainment aspect of it), but anyway. The crypto Twitter space looks very different to me - a lot of high-handed stuff and degen stuff - not a lot in between. Gotta quit being amazed by the forest and focus on that tree I’m about to walk into.
Thanks Frank - Kool stuff. The anti-fragile nature of crypto shifts risk to the people who hold it, as described or implied above. Holding crypto has a lot of risk - just happens to be worth it. But, I think everyone overestimates their ability to handle risk, including myself. It can cause a lot of unhealthy stress. Hopefully, there will be more focus from crypto influencers on risk management -I think Lark Davis has done well in his daily briefings to remind people to de-leverage to a point where they can handle the stress while still being (realistically) optimistic.
People need to focus on the little picture more. There’s a lot of big thoughts out there on world disruption. Though, I imagine somewhere close to 99% of people in crypto are first trying to deal with their personal financial issues first as an immediate issue.