‘Dr. Doom’ econ­o­mist de­scribes Bit­coin as ‘mother of all bub­bles’

Windsor Star - - FINANCIAL POST - MARGI MUR­PHY The Tele­graph With files from Bloomberg

The econ­o­mist who pre­dicted the 2008 fi­nan­cial crash has warned Amer­i­can politi­cians that Bit­coin is “the mother of all scams.”

Nouriel Roubini, a fierce critic of vir­tual cur­rency known as ‘Dr. Doom’ for his bear­ish stances, took aim at the blockchain tech­nol­ogy un­der­pin­ning cryp­tocur­rency. It is of­ten hailed as trans­for­ma­tive, even by those cyn­i­cal about dig­i­tal coins.

“Blockchain is the most over­hyped tech­nol­ogy ever,” the New York Uni­ver­sity pro­fes­sor told the U.S. Sen­ate bank­ing com­mit­tee. “No as­set class in hu­man his­tory has ever ex­pe­ri­enced such a rapid boom and to­tal ut­ter bust and im­plo­sion. … It is noth­ing bet­ter than a glo­ri­fied spread­sheet or data­base.

“It is clear by now that Bit­coin and other cryp­tocur­ren­cies rep­re­sent the mother of all bub­bles,” he added.

He made all the fa­mil­iar ar­gu­ments about cryp­tocur­ren­cies: That they have no in­trin­sic value; that they im­pose trans­ac­tion costs that are too high for small pay­ments, mak­ing them use­less as cur­ren­cies; and that they use up too much en­ergy to gen­er­ate. He warned that Bit­coin, the most pop­u­lar cryp­tocur­rency, was de­fla­tion­ary in na­ture be­cause of its fi­nite sup­ply (in a grow­ing econ­omy, that means prices de­nom­i­nated in Bit­coin can­not but fall) and that most of the other vir­tual cur­ren­cies “have an ar­bi­trary sup­ply-gen­er­a­tion mech­a­nism that is worse than any fiat cur­rency.” Roubini pointed to re­search show­ing that al­most four-fifths of all ini­tial coin of­fer­ings have been out­right scams.

He ar­gued that the crypto econ­omy was con­cen­trated in dodgy ju­ris­dic­tions such as China and Rus­sia, and that it cre­ated a wealth in­equal­ity “greater than that of Kim Jong-un land.” Roubini said the nick­name “s– coins,” used by cryp­tocur­rency traders re­fer­ring to less valu­able coins, was “a grave in­sult to ma­nure.”

The at­tack con­tra­dicts pro­po­nents of blockchain, in­clud­ing the Bri­tish govern­ment’s science of­fice. It came as the cryp­tocur­rency mar­ket took a bat­ter­ing off the back of tum­bling global stock mar­kets.

Bit­coin dropped as much as 6.9 per cent to US$6,080, its low­est point in two months. At its peak late last year Bit­coin was worth $20,000.

Traders claim Bit­coin’s sell­ing point is that its de­cen­tral­ized na­ture leaves it im­mune from stock mar­ket volatil­ity, act­ing more like a “dig­i­tal gold.” But it ap­pears in­vestors are us­ing tra­di­tional eq­uity strate­gies, sug­gest­ing the crypto mar­ket could dip far­ther if the stock mar­kets con­tinue down­ward. Matt New­ton, mar­ket an­a­lyst at cryp­tocur­rency ex­change plat­form eToro, said the fall was “a sign that the mar­kets are work­ing ” and that “much of the ‘good news’ is cur­rently hap­pen­ing be­hind the scenes.” Govern­ments are mulling whether to reg­u­late cryp­tocur­ren­cies, which crit­ics claim are ve­hi­cles for scams and money laun­der­ing.

Nouriel Roubini

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