Antifragility and Digital Currencies: How Chaos is Helping the Cryptocoin Market Part II
This is the second part of an essay that presents the thesis of antifragility as a key characteristic of digital currency markets. In the first part this essay, we introduced the concept of antifragility based on the thesis proposed by Nassim Nicholas Taleb in his book antifragile in which he refers to antifragility as a property of systems that get better with random shocking events. The first part of this essay explored three key factors that are helping cryptocurrencies grow into a really antifragile ecosystem(see the first part of this article for more details…). Today, I would like to continue exploring some of the factors that have been contributing to the antifragility of cryptocoins. Let’s get started:
4 — When Killing the Founder Doesn’t Kill the Currency
A few weeks ago, Ether experienced a massive crash from $400 to almost 10 cents. The reason for the abrupt decline was a fake press release claiming that founder of Ethereum had been killed in a car accident. Even when the markets realized that the whole thing was a scam designed to benefit a handful of speculators, digital currency exchanges such as CoinBase decided to honor the transactions that bought Ether on the low end before its quick recovery.
The Ether crash certainly showed how vulnerable digital currencies can be to fake news, both positive and negative. However, the event also highlighted Ether’s strong foundation. The cryptocurrency didn’t only rapidly recover from the crash but it is also back trading close to $300. More importantly digital currency exchanges are already working on the mechanisms to better factor in news sentiment. That’s a sign of antifragility.
5 — Survival at 7 Transactions per Second
For years, Bitcoin was operating under massive constraints from its network which was constantly at the risk of running out of space and was only able to process 7 transactions per second. Under those limiting circumstances, Bitcoin maintained over 40% of the digital currency market and rose to a price over $3000. Not surprisingly, went a controversial update that addressed some of those limitations was implemented at the beginning of the month the optimism around Bitcoin investors rose pushing the currency to over $4000 this week. It is important to notice that the recent raise on the price of Bitcoin has taken place at the same time that the Bitcoin Cash fork currency entered the market. That’s antifragility.
6 — Government Crackdowns Welcomed
A few months ago, the price of bitcoin stated suffering under an anti-corruption campaign by the Chinese goverment that involved some of the major bitcoin exchanges in that country. At the same time this was happening, the Japanese goverment also imposed new regulations on the use of Bitcoin. China and Japan and their respective currencies are incredibly important to Bitcoin as they account for a large percentage of the trades worldwide. Instead of collapsing under the crackdown, the price of bitcoin benefited from the regulatory guidance and market recognition provided by both the Japanese and Chinese governments. As soon as the goverment crackdown stopped, the price of Bitcoin started rapidly trending upwards. That’s antifragility.