In response to Nouriel Roubini’s FUD
In his article here:
Nouriel Roubini shows either a lack of knowledge of Bitcoin or perhaps is knowingly misrepresenting the truth. You decide.
“As a currency, Bitcoin should be a serviceable unit of account, means of payments, and a stable store of value. It is none of those things. No one prices anything in Bitcoin. Few retailers accept it. And it is a poor store of value, because its price can fluctuate by 20–30% in a single day.”
Regarding “a serviceable unit of account”, Bitcoin is most certainly a unit of account.
Regarding “means of payment”, Bitcoin is already a means of payment for many retailers (see below) and with the Lightning Network Bitcoin it can become a means of payment capable of massive scale (competitive and even superior to Visa). The next few years will prove if this budding technology is up to the task, but to simply claim “it is none of those things” without qualification is misleading at best.
“No one prices anything in Bitcoin”
False statement: https://bazaarbay.org/ there are certainly more examples, such as https://www.reddit.com/r/Jobs4Bitcoins/. Apparently a google search was beyond Nouriel’s capability (or interest in intellectual honesty).
“Few retailers accept it”
Another false statement:
https://99bitcoins.com/who-accepts-bitcoins-payment-companies-stores-take-bitcoins/
https://www.ccn.com/bitcoin-accepted-japanese-electronics-retail-giant-begins-crypto-payments/
“And it is a poor store of value, because its price can fluctuate by 20–30% in a single day.”
As for it’s use as a store of value, yes it has a history of being volatile within a long term upward direction. This is also a statement that has to be looked at relative to one’s native currency. See Venezuela. As bitcoin matures, it’s very likely the price will stabilize, at least relative to other stable stores of value, like gold. Perhaps it will still remain unstable against instantly and ever inflatable fiat currencies, but that’s hardly an issue with Bitcoin.
“Worse, cryptocurrencies in general are based on a false premise. According to its promoters, Bitcoin has a steady-state supply of 21 million units, so it cannot be debased like fiat currencies. But that claim is clearly fraudulent, considering that it has already forked off into three branches: Bitcoin Cash, Litecoin, and Bitcoin Gold.”
First, while Litecoin is a fork of Bitcoin’s code, it is not a fork of Bitcoin’s blockchain. For someone claiming knowledge enough to advise others regarding “broken promises” I’d think you’d have done enough research to know that.
Regarding Bitcoin Cash and Bitcoin Gold, they are cheap copies of Bitcoin that don’t share Bitcoin’s network effects. To compare those forks to monetary inflation is tantamount to suggesting that this is the same as this.
“As is typical of a financial bubble, investors are buying cryptocurrencies not to use in transactions, but because they expect them to increase in value.”
Or they are buying it because it has a fixed regular inflation schedule, unlike that of Nouriel’s endorsed central banking systems whose inflation announcements (having massive impact on their “subjects”) are irregularly decided on by a small privileged cabal and announced, likely in advance to their cronies. You know how businesses just love surprises.
“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.”
So first, see links above to completely discredit the “only…illegal activities” claim and regarding capital controls, it’s a perfect tell of his political philosophy. Nouriel apparently thinks that governments controlling capital flight is somehow morally righteous. Here’s a concise point to put that notion in context.
“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.”
Apparently despite your experience at the IMF, this escaped your attention:
“The idea that hundreds of cryptocurrencies could viably operate together not only contradicts the very concept of money; it is utterly idiotic.”
Right, that would be absurd: http://moneypantry.com/rewards-programs/
“ if a fiat currency loses credibility, as in some weak monetary systems with high inflation, it will be swapped out for more stable foreign fiat currencies or real assets.”
Why would he rule out Bitcoin which is actively being used in Venezuela to avoid the impacts of rampant inflation? Bitcoin is more easily transported across borders than some other fiat since it requires no banking infrastructure and therefor cannot be stopped via banking regulations. All one needs is simply a smart phone and an internet connection. Some Venezuelans are actually mining Bitcoin so they don’t even need to find someone to trade it to them. Electricity in, Bitcoin out.
“As it happens, Bitcoin’s supposed advantage is also its Achilles’s heel, because even if it actually did have a steady-state supply of 21 million units, that would disqualify it as a viable currency. Unless the supply of a currency tracks potential nominal GDP, prices will undergo deflation”
The deflation argument has been used forever and has not really been tested in the modern world. There are plenty of goods that go down in price due to innovation, see technology (PCs, phones) and the many industries with improved productivity thanks to technological advancement (telecom, entertainment, genome sequencing etc.).
The other fallacy of the argument is his assertion that Bitcoin can’t work along side other cryptos (according to him), and can’t work alone (according to him) so that means there’s no place for it. Bitcoin can obviously work alongside many other types of currencies and assets as it has since its invention. The presence of gold, which is similarly deflationary to Bitcoin, isn’t a net negative on the economy despite the average consumer good deflating relative to its value. If anything, it is a net positive that keeps central bankers more honest with their own unpredictable monetary inflation policies, or alternatively forces them to game the price of gold (I wonder why). Both gold and Bitcoin (among many other assets) can act as a hedge against a stock market or other collapse. Bitcoin is also an uncorrelated asset that can improve one’s portfolio diversity since it doesn’t move in any quantifiable way with or against other assets.
“That means if a steady-state supply of Bitcoin really did gradually replace a fiat currency, the price index of all goods and services would continuously fall.”
Here I’ll agree, but falling prices are a good and more notably an inevitable thing that should be happening more now due to massive increases in productivity. IMO central bankers have been eating productivity gains via monetary manipulation leaving us with decaying buying power as salaries increase less than effective inflation.
“At the same time, nominal wages in Bitcoin would increase forever in real terms”
His “real terms” is ironically defined in terms of un-backed paper currency.
“Clearly, Bitcoin and other cryptocurrencies represent the mother of all bubbles, which explains why every human being I met between Thanksgiving and Christmas of 2017 asked me if they should buy them.”
Clearly, a really bad argument (not an argument) there. Another thing that had a similar buzz back in the day was the internet itself. While there was a bubble in internet related stocks (that has since recovered) the internet itself was not a bubble. If anything, it has impacted daily life in ways not previously imaginable.
“As for the underlying blockchain technology, there are still massive obstacles standing in its way, even if it has more potential than cryptocurrencies. Chief among them is that it lacks the kind of basic common and universal protocols that made the Internet universally accessible (TCP-IP, HTML, and so forth). “
And right there is the worst logic of all. The universal protocol is exactly what he bashed throughout the article, Bitcoin. Bitcoin is the Ethernet of value and the Lightning Network is its TCP/IP (props to Jameson Lopp for the concise analogy). Bitcoin and Lightning are both protocols for the transfer of value over the internet (or other communication mediums, such as satellite networks , SMS and short wave radio) without trusting 3rd parties, like central bankers or governments.
“So, forget about blockchain, Bitcoin, and other cryptocurrencies, and start investing in fintech firms with actual business models, which are slogging away to revolutionize the financial-services industry. You won’t get rich overnight; but you’ll have made the smarter investment.”
What convenient advice. Bank to bank payments still take days (in the US), “fintech” is largely closed nights and weekends. We get to pay banks and credit card companies for the privilege of reporting our activities to the IRS and selling our information for marketing purposes (go big data, buh bye privacy!). We earn close to 0 interest on deposits while paying up to and over 20% on credit card interest rates. We can pay for services to protect our identity due to massive centralization of information and incredibly insecure broken credit card technology which to this very day requires providing our private keys in the open (CC#, exp date, name and even the “secret” CVV! All that an attacker needs to spend from your account — brilliant!). Yeah, great business models.
Wikipedia: “Nouriel Roubini…became an academic at Yale and a visiting researcher/advisor at the International Monetary Fund (IMF), the Federal Reserve, World Bank, and Bank of Israel.”
Advice: don’t get your advice about a disruptive technology from someone with a vested interest in the industry that’s being disrupted. Also, don’t take my advice. Do your own research.
