Just because Tesla’s Elon Musk and MicroStrategy’s Michael Saylor may be betting the house on bitcoin doesn’t mean you should, wrote New York University economics professor Nouriel Roubini in a Financial Times opinion piece.
Roubini warned U.S. lawmakers two years ago that cryptocurrencies are “the mother of all scams and bubbles.” He’s still at it, pooh-poohing claims that crypto will decentralize finance, bank the unbanked and make the poor rich.
The CEO of Roubini Macro Associates, a macroeconomic consultancy in New York, Roubini warned in 2006 of the credit and housing market bubble. Now he’s focused on crypto and blockchain.
“Blockchain claims to enable cheap money transfers to refugees, but crypto is much more likely to provide cover for scam artists, conmen, tax evaders, criminals, terrorists and human traffickers,” Roubini wrote in the FT column.
He denied the idea that crypto is a stable store of value. “Even some crypto conferences refuse to accept them as payment for attendance fees,” Roubini wrote. “The volatile price moves can wipe out any profit margin of a merchant within a matter of hours. They aren’t even denominated in a consistent way that allows users to compare relative prices of goods.”
Roubini warned of “pump and dump schemes” contributing to the surge in bitcoin, during a Feb. 17 interview on “Bloomberg Surveillance.” He predicts that bitcoin will never be used as a means of payment for goods and services.
“This reliance on different tokens is effectively a return to barter,” Roubini wrote in the Feb. 10 Financial Times column. “The Flintstones had a more sophisticated monetary system based on a benchmark: the cartoon cavemen used shells.”
Hayes debated Roubini in 2019 during a discussion promoted as “The Tangle in Taipei” at the Asia Blockchain Summit.
“He’s a hater, he’s a no-coiner,” Hayes said of Roubini during an interview on Bloomberg’s Daybreak Asia on the sidelines of the 2019 summit. “He’s someone who doesn’t have any bitcoin and hasn’t watched the price skyrocket in their face over the past few years.”
Roubini discounted claims that bitcoin is the new “digital gold,” saying that idea is feeding a new bubble in bitcoin and other cryptocurrencies.
“Gold is the analog,” Hayes has said. “If you want to transport $1 million of gold, that’s very heavy. Now with a wallet, you can transport a vast amount of wealth anywhere you go. If we are really moving into a digital economy then the way we store wealth — well, the hard assets that is pricing wealth — must change. And I think bitcoin could be that asset.”
But Roubini argues that even referring to cryptocurrencies as assets is a misnomer. “Most assets have a stream of income (stocks, bonds, commercial real estate) or a use (housing) or some other utility (fiat currency provides liquidity and can be used for payments),” Roubini wrote in Financial Times. “Gold has no income but it has industrial uses. It also has utility as a store of value and a hedge against inflation, currency debasement and tail risks.
By comparison, crypto “has no income, no utility, no payment or other services,” Roubini wrote. “It isn’t even anonymous because the underlying blockchain technology makes it easy to trace payments. It is only a play on a speculative asset bubble, worse than tulip-mania as flowers had and still have utility.”
In a reply to Roubini, David Crook, CEO of Tail Wind Advisory & Management in London, argued that bitcoin, while volatile, is a legitimate alternative to conventional money.
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“Bitcoin is like a growth stock,” Crook wrote. “As it grows and becomes seasoned it will be less volatile. Like many growth stocks, it may even become blue-chip … A volatile market does not mean a manipulated one. This is arguably what the world’s major currencies now are.”
Crook predicts that the number of places accepting bitcoin will increase, along with the speed and efficiency of transactions and exchange.
“Commentators have been too preoccupied by the bubble-like levels of the blockchain currencies,” Crook wrote. “This is a cyclical phenomenon. Once the bubble has popped, I believe several blockchain currencies will survive and have a long-term future.”
Risky, volatile bitcoin doesn’t belong in the portfolios of serious institutional investors, Roubini concluded. “Our world is beset by financial crises, geopolitical risks and very loose monetary policy. There is growing demand for safe-haven assets that are a hedge against inflation, currency depreciation and debasement and tail risks. Gold, inflation-indexed bonds, commodities, real estate and even equities are all reasonable candidates.”