I assume Nouriel Roubini is a smart guy. So is Warren Buffet. It doesn’t mean I’d want them to do heart surgery on me, because it’s not their thing. My guess is, they’d have no interest in performing heart surgery because they know it’s not their thing. So, just because someone’s smart, doesn’t mean they understand crypto. But shockingly, many people who don’t understand crypto think they do, and they’re happy to prognosticate and state as “facts” a wide range of misinformation. Below are the 10 most head-scratching things said by Nouriel Roubini in his recent Congressional testimony:
1. “Since the invention of money thousands of years ago, there has never been a monetary system with hundreds of different currencies operating alongside one another”
This is the stupidest thing that Nouriel said, highlighting his basic lack of understanding of Crypto. Few cryptocurrencies are trying to be currencies. Almost all are like frequent flier miles. They can be used to incentivize members of a community to perform certain tasks (e.g. take a flight), and once earned or bought, they can be used as a means of payment for products or services. Nuriel thinks they’re currencies because of the nomenclature.
2. “It is clear by now that Bitcoin and other cryptocurrencies represent the mother of all bubbles”
Total losses peak (January 7th, 2018) to trough (September 12th, 2018) in crypto was less than $700 billion. Is that really the mother of all bubbles?
$5 trillion of wealth was lost in the internet bubble of 2000. That translates into about $7.3 trillion in 2018 dollars.
The market lost over 89% peak-to-trough during the great depression. That translates into more than $2 trillion in today’s dollars.
This isn’ really stupid, it’s more of a lie.
3. a “shitcoin” is a grave insult to manure
It’s nice to know that Nuriel has a sense of humor
4. “the top 10 coins traded — after Bitcoin — have lost between 83% and 95% of their value since peak with an average loss of over 90%. This is a true Crypt-Apocalypse”.
The definition of apocalypse is “the complete final destruction of the world”. I’m sure Nouriel thought the internet bubble was a true Internet-Apocalypse. Amazon was down 95% from its peak to its trough. Just because the price of something goes down, doesn’t mean it’s an apocalypse.
5. Until now, Bitcoin’s only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering
This is an old and tired trope. But one regulators like to focus on.
I view Bitcoin as a store of value. Better than gold. It’s worth $108 billion today. That makes Bitcoin the fastest growing startup in the history of the world from a valuation standpoint.
There are other use cases, most notably in remittances.
6. Fiat currencies are also protected from value debasement by central banks
Nouriel goes on to write “Fiat money also is not created out of thin air: these liabilities of a central bank such as the Fed are backed by the Fed assets: their holdings of short-term and longer term Treasury securities”. Those statements are false on so many levels.
To be clear, debasement refers to lowering the value of a currency, generally as it relates to precious metals. The U.S. has a long history of dollar debasement. In one day in 1934, the U.S. passed the Gold Reserve Act, causing the price of an ounce of gold to rise to $35 from $20.57. That’s 40% debasement in one day!
Below is a historic chart of the debasement of the dollar relative to gold.
7. “Bitcoin claim of a steady-state supply of 21 million units is fraudulent”.
Nouriel buttresses this argument by stating that the 21 million claim “ …is clearly fraudulent, considering that it has already forked off into several branches and spin-offs: Bitcoin Cash and Bitcoin Gold…It took a century for Coca-Cola to create the new Coke and call the old one Coke Classic.”
Nouriel apparently doesn’t even realize that forks create a new thing, not more of the old thing.
A common element of Nouriel’s Crypto ignorance is his belief that things will not get better over time. That there will be no technical progress in Crypto. Apparently, Nouriel hasn’t heard of Moore’s law. So I bunch these ignorant statements together:
8A. “..because its price can fluctuate by 20–30% in a single day. And since its price has been so unstable or volatile almost no merchant will ever use it as a means of payment”
In fact, Bitcoins volatility has been falling over time:
8B. Crypto-currencies instead have not and will never have the tools to pursue economic and financial stability.
8C. It will never be possible to create a consensus mechanism that is scalable while also being decentralized and secure.
8D. There is no institution under the sun — bank, corporation, non-profit, government, charity — who would put on public, decentralized, peer-to-peer permission-less, trust-lees, distributed ledgers its balance sheet, P&L, transactions, trades, interactions with clients and suppliers. Why should all this information — mostly proprietary and highly valuable — be on a public ledger
9. “…the Internet quickly gave rise to email, the World Wide Web, and millions of viable commercial ventures used by billions of people in less than a decade”
Nouriel argues that Crypto’s a crock because we’re 10 years in, and nothing has scaled. He compares it to the World Wide Web, which was created in the early 90’s. That’s comical! The World Wide Web is not the internet. Rather, it’s the most common means of accessing data via the internet in the form of websites and hyperlinks. The web helped popularize the Internet.
Arpanet, formed in the late 1960’s, is what the Internet evolved from:
In fact, the first email was sent via Arpanet in 1971. Email didn’t scale for more than 20 years.
10. Blockchain’s ideology is politically born out of the same mentality as libertarian right-wing conspiracies or extreme left-anarchism: all governments, central banks, money, institutions, banks, corporations, entities with reputation and credibility build over centuries are evil centralized concentrations of power that literally need to be destroyed.
While this is certainly an element of crypto, it is a smaller element every day. In my view, this is not a fight of good vs. evil, this is a fight for a better system. A better world. We now have a new computing paradigm, crypto, that is enabling all types of new business processes (e.g. decentralization) that weren’t possible before. The success of crypto doesn’t hinge on the end of world order as we know it.
In fact, crypto doesn’t hinge on anything. Crypto is happening whether Nuriel likes it or not. Whether the U.S. likes it or not. Whether China likes it or not.
I appreciate that the U.S. Congress, and every other government and financial regulator in the world are trying to figure out what to do. My guess is, they’re going to regulate. It’s in their job title. The regulators have two choices. They can roll out the red tape, or red carpet. And they roll out the red tape at their peril. The Crypto genie is out of the bottle.