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Re:Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf] by Animats on Wednesday December 29, 2021 @02:20PM (#29728814)
Taleb being an academic is fun to read. He's an options trader. He made his money with a fund that bought way-out-of-the-money options. That strategy loses money most years, but was a big win in 2008, when the crash made those cheap options valuable. Any 5-year period in the past 30 years that didn't include 2008 would probably have been a lose. So he may have been lucky, rather than smart. Although, arguably, you could see in the runup to 2008 that something had to give.

Taleb's big argument here is that Bitcoin will someday be obsolete and will have a value of 0. Since Bitcoin doesn't generate income or pay dividends, its present value is thus 0. That's a strange position for an options trader to take. Options, by their nature, expire, and have a value of 0 at some future time. Yet they are traded during their life as having value.

An option is a bet, not an investment. It's zero-sum; losers + winners is zero, minus some trading costs. This is also true of Bitcoin. Taleb, interestingly, does not analyze Bitcoin as an option. Possibly out of frustration. Options are analyzed based on what the underlying commodity is expected to do. Bitcoin has no underlying commodity. So option analysis techniques won't work.

Nobody has a convincing model for the future value of cryptocurrencies. It's mostly velocity investing - it goes up because it's been seen to go up. Until it doesn't. Taleb looks at financial history, sees that this isn't the first thing which behaves that way, and notes that pure speculative instruments always collapse in the end. But when?

Re:Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf] by wdpk on Wednesday December 29, 2021 @03:16PM (#29729450)
>Taleb's big argument here is that Bitcoin will someday be obsolete and will have a value of 0. Since Bitcoin doesn't generate income or pay dividends, its present value is thus 0. That's a strange position for an options trader to take. Options, by their nature, expire, and have a value of 0 at some future time. Yet they are traded during their life as having value.

this remark is not true, only some possible paths of an option end-up at 0 otherwise nobody would take the other side of the bet... In the parlance of Options trading, there will be options that end-up at expiry in the money with a strictly positive payoff and some out of the money. In order to price an option expiring sometime in the future as of today, you have to take into account all the possible future payoffs (in and out of the money), and the probability distributions of such payoffs then propagate back to present time (check tree methods or cox ross rubinstein for an example of how this can be done). So if all possible future payoffs were 0 then the present value of the option would be 0 too. Same thing with bitcoin, if in the future you think with 100% probability that the price will be 0 (the absorbing barrier) then going backward from that future moment, you'll get the "rational" price at t-1 to be 0 and so on until today.

Re:Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf] by Animats on Wednesday December 29, 2021 @03:42PM (#29729751)
Technically, when an option expires, its value goes to zero. However, normally you don't let an option in the money expire; you exercise it first. Some brokers do that for you at expiration.
Re:Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf] by wdpk on Wednesday December 29, 2021 @03:54PM (#29729895)
Technically speaking, as you get closer to maturity, the "time value" of the option goes down towards 0 but options also have intrinsic value and the total value of the option converges to it's intrinsic value not to 0 (intrinsic value can be 0 but not only). Now if you do not exercise your in the money option it's like having a winning lottery ticket and not cashing it, it's not something a rational agent would do.
Re:Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf] by kqr on Wednesday December 29, 2021 @03:21PM (#29729511)
Didn't he make his first bunch of money the same way in 1987?
Re:Nassim Taleb: Bitcoin, Currencies, and Fragility [pdf] by Animats on Wednesday December 29, 2021 @09:46PM (#29732946)
I think so. There have been about five crashes in the last century when his trick would work. (Well, until 1982s, there were no stock market derivatives, so you couldn't have done this in 1929.)