The Antifragile Answer

June 3, 2020

These unprecedented times get more and more unprecedented indeed.  It seems that over the past few weeks parts of the United States – and even parts of the world – descended into chaos.  The outrage around the death of George Floyd combined with months of stay-at-home in the Covid-19 world, and skyrocketing unemployment capped with confusion in the fiscal markets has created a powder keg that now is ripe to explode.

THE ANTIFRAGILE ANSWER

In this world of disintegration, why is it then, that Bitcoin has outperformed all other markets year to date?   The answer can be found in exploring one of its fundamental elements, and that is that crypto assets are antifragile.

Antifragility is a concept pioneered by Nassim Taleb, who identifies that systems that are fragile tend to break under stress and chaos, but systems that are anti-fragile thrive under stress and chaos. They are more than just robust and resilient, more than unbreakable. Instead they actually grow and improve.  An example of an antifragile construct is the human body.  When you work out, you actually create stress on the muscles and create tiny muscle tears.  The body then repairs itself stronger.

This, I would argue, is one of the reasons that Bitcoin is currently the best performing asset class of 2020, outperforming all others.

Picture3.jpg

Applying the concept of fragile/antifragile to the fiscal markets, our traditional markets are fragile.  Disorder tends to yield disarray, risk, fear and ultimately market losses.   Bitcoin (and other crypto assets) however, are designed from the ground up to operate very distinctly from traditional fiscal instruments.  While it’s true the traditional markets have had some recovery, this is only due to massive government intervention.

In the midst of the unsettling last few months, however, Bitcoin has not only held position but grown in value, and has done so without federal intervention, without quantitative easing, without stimulus checks or emergency loans or government mandates.   Conversely, traditional markets which now include more and more complex instruments such as derivatives are now getting complexity compounded with the Fed’s actions.  As such, our traditional instruments become more exposed and this is why many experts predict a traditional market crash must inevitably come due as hyperinflation looms in the not-too-far-future.

Bitcoin, by contrast, is not centrally governed, is transparent and systemically sound.   It does not require pulling and prodding or manipulation from a central entity to maintain its value.  More can’t be printed on a whim.  As the world becomes more and more complex and chaotic, Bitcoin gets stronger.    This does not mean it doesn’t have its moments of highs and lows – it is market based of course — however what we have seen is that, over time, we’re seeing higher highs and higher lows, and a resilience that is uncanny.

We’ve been predicting a strong bull run outside of the current background of civil unrest.  We see such additional stress as one more strong argument as to why Bitcoin and the crypto markets have outperformed to date, why we believe Bitcoin will continue to be a significantly outperforming asset class over the coming years, and why we believe it has earned its place in a modern portfolio.

It’s always scary to take a leap of faith, however this is where the big gains are.  Perhaps this is why, now, in a world of uncertainty, Wall Street investors are now warming to Bitcoin and crypto in general.    In a world of chaos, it’s good to have something antifragile.

As always, please reach out with any questions, stay safe, and we’ll continue to Decrypt: Crypto for you!

About the author James Diorio

James is the Principal and Chief Executive Officer of Tradecraft Capital.