Regulators and the Antifragility of Bitcoin

antifragile

#1

Article was originally written in late January, 2018… so, FYI. Still good stuff.


via medium

Antifragility is one of my favorite concepts in the architecture of modern systems. Quoted by author and philosopher Nassin Nicholas Taleb in his book Antifragile, the concept defines entities that can benefit and get better by sustaining shocks and chaos. In the words of the master himself:

“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better”.

I’ve been very intrigued how the concepts of antifragility is manifesting in the digital currency ecosystem. Not only from the conceptual standpoint but in terms of the market impact. A few months ago, I published some of my initial thoughts about the nascent antifragile characteristics that we can observe in some digital currencies. The aggressive and coordinated regulatory crackdown of the last few days have offered a unique macro-perspective to analyze this phenomenon.

The antifragility of the digital currency market has manifested itself last year by adapting to shocking events such as China’s ban of cryptocoin trading, the aggressive position of the U.S Securities and Exchange Commission regarding initial coin offerings(ICOs) or the regular hacking attacks against digital currency exchanges. However, nothing impact more the cryptocurrency markets than the potential of a regulatory crackdown by governments across the world. In recent weeks we have seen an escalation in the measures that regulators are taking to control digital currency assets. Just yesterday, we had a series of events that can make the price of a market asset collapse. Let’s take a quick recap:

· The South Korea Korea Customs Service (KCS), the statement alleges that a total of 637.5 billion won worth (or around $600 million) in foreign currencies have been exchanged illegally, including unrecorded capital outflow using cryptocurrencies.

· Also, the South Korea Financial Services Commission (FSC) announced that, starting from Jan. 30, cryptocurrency investors in South Korea will have to use real-name bank accounts in order to continue trading.

· The U.S Commodities and Futures Trading Comission issued subpoenas to cryptocurrency exchange Bitfinex and cryptocurrency provider Tether regarding their financial holdings.

· Cryptocurrency company BitConnect was hit with another lawsuit alleging that the company has been operaring a Ponzi scheme with its investment vehicle.

· The U.S. Securities and Exchange Commission (SEC) is suing cryptocurrency banking company AriseBank with alleged fraud during its recent ICO.

That was just yesterday!!! Its impossible to find another market asset that can sustain a similar wave of recurrent bad news.

And Bitcoin is Still Alive

Not surprisingly, the price of Bitcoin dropped yesterday amid the wave of awful news and it triggered a drop in the price of other digital currencies across the board. However, the drop was only about 5% as of this morning which shows that Bitcoin, once again, is showing signs of antifragility.

Is Bitcoin is able to get passed this wave of regulatory crackdowns, is not crazy to think that its price can raise towards new levels. So far, the $10,000.00 mark seems to the support territory.

Regulation is Good

In the long term, I believe regulations will have a positive impact in the digital currency ecosystem. If goverments are able to established thoughtful regulatory framworks for digital assets, that will pave the way for new financial products based on cryptocurrency and will legitimize the use of crypto tokens within the mainstream population beyond the speculative means. In the short term, is obvious that regulatory are playing a pivotal role in the recent decline on the valuations of most digital currencies. However, don’t be surprised if the market is able to benefit from these shocks and keeps becoming more antifragile.


#2

Seriously depends on who the regulation is trying to protect.

But I agree with this. I have faith that regulation will help legitimize things and allow crypto to enter more and more markets once law legitimizes, and protects, the use of crypto as a financial instrument.