Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

[Renew Deal]

Source: WSJ

Nouriel Roubini is skeptical about bitcoin.

While en route to Kuwait from London on Sunday, Mr. Roubini apparently had bitcoin on his brain, and he wasn’t shy about sharing his thoughts to his 289,000 followers on Twitter

The NYU economist and professor, nicknamed Dr. Doom for accurately forecasting the 2008 financial crisis, called bitcoin a “Ponzi game.”
<snip>

Tweets are below:

Apart from a base 4 criminal activities, Bitcoin is not a currency as it is not a unit of account or a means of payments or store of value

Bitcoin is not a unit of account as no price of goods and services is set in Bitcoin unit nor it ever will. So it isn't a currency

Bitcoin isn't means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥

Bitcoin isn't a store of value as little wealth is in Bitcoin and no assets in it. Also given price volatility it is a lousy store of value

So Bitcoin isn't a currency. It is btw a Ponzi game and a conduit for criminal/illegal activities. And it isn't safe given hacking of it.

BTCbugs like gold bugs are fanatics who speak of BTC in cult-like religious ways.Like gold bugs they have paranoid conspiracy views on the $

https://twitter.com/Nouriel

Read more: http://blogs.wsj.com/moneybeat/2014/03/10/nouriel-roubini-bitcoin-is-a-ponzi-game/

[TreasonousBastard]

1. Anyone with a brain would think so...

Casino chips actually hold more value then bitcoins.

[MindMover]

17. Much more value ...

[brooklynite]

19. ...and the Casino serves free drinks.

[MicaelS]

2. But WHY does he hate on Bitcoin?

"I mean, he's only an Economist and a Professor, and has a vested interest in the current system. And, oh yes, he hates Gold, too. While Gold is the only TRUE currency and everything else is a fiat currency."



The above statement is obviously devil's advocate, and basically what "Miners would say. BTW, for those that don't know, many of the 'Miners are RW Libertarians.

[Psephos]

3. no different from FRNs

except that the dollar scam is many orders of magnitude worse

[1StrongBlackMan]

9. No differemt? ...

except FRN are backed by the "full faith and credit" of the U.S. government; whereas, bitcoin is backed by ... what?

[bongiver]

11. "full faith and credit"

"full faith and credit" of the U.S. government.

Translation: "threat of violence" from the U.S. government.

[1StrongBlackMan]

12. No ...

that must be the libertarian-speak translation ... the rest of the world reads that to mean, if the underlying instrument fails, the U.S. government will make good on the debt.

[randome]

13. Yet the government 'allows' Bitcoin to rise or fall on its own.

And it seems headed for a fall despite the occasional 'burp' in value.
[hr][font color="blue"][center]Treat your body like a machine. Your mind like a castle.[/center][/font][hr]

[eggplant]

14. Are you sure you're in the right place?

[bongiver]

16. Good question

I often wonder what has happened to my party.
Especially, when I see posts in here in support of NSA spying and indiscriminate drone strikes on civilians, etc...

[MADem]

4. I've been saying this for awhile! nt

[Renew Deal]

5. Nice post Nouriel!

[MADem]

6. Ha ha ha!

I'd love his net worth, and given that it snowed this morning and a storm is due on WEDS, I'd love to be on a plane to Kuwait, too!

[BlueStreak]

7. So what is propping up the price?

It seems to me there are three major stakeholders.

1) The original miners who were able to grab 6 million of these coins while that was easy to do. Most of them are sitting on the stash hoping for a big payday, considering most of them have little real investment other than their time. And you can't really count the time because this has been like playing a game of dungeons and dragons.

2) Drug traffickers. They love this because it is relative untraceable, and not easily impounded by the authorities. Drug lords don't mind the volatility. That is a small price to pay for a way of staying out of prison. If they lose half their value, it is no big deal. There are more drug deals tomorrow.

3) Merchants that are transacting in bitcoin. They almost always convert immediately to a real currency. it is just a way to transact with customers and position themselves as leading edge. They don't care if the system collapses. They were at the front of Foursquare too. They will just move on to the next shiny object.

I'd wager that of the ~12 million coins that have been mined, less than a million are actually in "circulation", as in serving as a daily currency. The rest are parked either for a big payday (group #1) or for a good opportunity to launder this into a real currency and park it in a safe haven (group #2).

Groups 2 and 3 are still putting demand on that million or so coins that are in active circulation. And that's why the price is still there. That situation could continue indefinitely. But the corollary is that the value isn't going to stabilize anytime soon.

[1StrongBlackMan]

8. I have major problems with ...

Last edited Mon Mar 10, 2014, 03:11 PM - Edit history (1)

the way Nouriel Roubini makes his money, i.e., shorting economies, then putting out dire predictions in his newsletter and "advising" (read: scaring the crap out of) his subscribers and telling them "I have the asset protection solution" ... all without disclosing he has already shorted the market.

But I completely agree with him here.

[MindMover]

18. He is a gamer, albeit a short time gamer ....

[phantom power]

10. Arguments like this are vacuous.

A currency is useful if enough people decide to start using it. Very few people use bitcoin. So of course not very many goods and services have been priced in units of bitcoin. And for exactly the same reason, its rate of exchange with other currencies is volatile.

But trying to claim "it's not a currency" because of the above is circular. "It's not a currency because very few people use it as a currency."

People seem to have a great deal of trouble with the idea that the value of *any* currency is an emergent property. There is no currency that is inherently "legitimate." Bitcoin will become legitimate if enough people decide they want to use it. End of story.

[1StrongBlackMan]

15. Oh Goodie ...

can I interest you in getting in on the ground floor of my emergent Tulip Currency? When a critical mass of the people come to believe that my Tulip Currency actually IS a legitimate store of value, you'll be RICH ... RICH, I tell you!

[phantom power]

20. bitcoin is designed to be a medium of exchange, not bought and sold as an investment.

Like dollars. The primary purpose of dollars is to function as a medium of exchange. But that doesn't stop people from treating it like an investment, trading off against its fluctuations in value against other currencies. But we don't compare dollars to tulips.

[1StrongBlackMan]

21. That's because with dollars there is a there there! eom

[pnwmom]

23. How do you KNOW bitcoin wasn't designed as a ponzi scheme,

with the initial planners getting out when they'd made enough of a profit?

Other than the bitcoin-pushers P.R.?

[phantom power]

24. Because I've read the original whitepaper. It describes a particular technology.

To solve a particular technical problem -- maintaining a distributed accounting system that can remain accurate and verifiable without the need for trusted-3rd-parties, such as banks or governments.

It doesn't "push" anything. It doesn't tell anybody to buy bitcoins as an investment to get rich. It's designed to be a medium of exchange that can operate easily and transparently over the internet, without trusted-3rd-parties. No more, and no less.

[pnwmom]

25. The fact that they developed a technology to use for this

doesn't exclude the possibility that they intended it all along as a ponzi scheme.

In fact, it would hardly work as a ponzi scheme if they hadn't developed a convincing enough story -- i.e. their special technology -- to get people to buy.

[phantom power]

29. I highly doubt it, and here's why:

The rubes who fall for ponzi schemes don't require working technologies to fall for them. They are credulous by nature. Nobody would ever have to go to the substantial effort of coming up with a creative, real, technology, to sell a ponzi scheme, or any other kind of con game. In the real world, people fall for the most transparent horse-shit imaginable, all the time.

[pnwmom]

30. Remember Bernie Madoff? Many who fall for ponzi schemes are anything but "credulous by nature."

Last edited Mon Mar 10, 2014, 09:00 PM - Edit history (1)

Some of them are convinced they are smarter than everyone else, and have figured out a better investment. Those people would fall for something like bitcoin.

There were sophisticated investment companies who lost BILLIONS in Bernie Madoff's scheme. They weren't rubes, they were highly intelligent dupes.

Just like some bitcoin "investors" today.

http://s.wsj.net/public/resources/documents/st_madoff_victims_20081215.html

[phantom power]

33. Madoff didn't invent a new technology to conduct his fraud. Because why would he?

People don't invent technologies to perpetrate fraud. They exploit existing systems, and just generally lie and cheat.

Bitcoin wasn't invented for the purpose of conducting a scheme. However, its implementation (or more accurately it's incorrect implementation) created some opportunities for fraud.

[pnwmom]

35. Neither of us were the inventor so we don't know whether the technology was part of an

elaborate fraud to deceive people into investing into a ponzi scheme.

But it wouldn't be the first time an elaborate fraud was conceived to separate people from their money.

[pnwmom]

22. The major currencies are backed up by major governments, which own actual assets.

The bitcoin is backed up by nothing and nobody, as we're seeing now as two of these companies have recently bit the dust.

[phantom power]

26. Currencies like dollars are not backed up by assets. Their value is an emergent consensus behavior

There is no guaranteed asset value of a dollar. Dollars haven't had a guaranteed asset value since before I was born. By that I don't mean they have no value. But the value they have is a product of their widespread use, and evolving cultural consensus.

Some people (libertarians and/or gold bugs, I guess) appear to be very interested in hypothetical ways that bitcoins might behave like gold. But they really have it exactly backwards.

It's much more interesting to think about how bitcoin values could stabilize in the same way that familiar currencies stabilize. By widespread use and emergent consensus. I don't know if that will ever happen or not, but if it does happen, it will happen because enough people decide to use them. Enough so that their value stops fluctuating wildly.

[pnwmom]

27. Why would people on a widespread basis adopt bitcoins?

There's no problem paying with credit cards (even store bought, pre-filled credit cards) on line.

Most of the people in the forefront of bitcoins are either selling in the black market, or they're trying to avoid taxes.

Or they're buying them as an "investment."

[phantom power]

28. There are some concrete benefits...

1) again, going back to the actual original technical problem: the technology allows currencies (and, more generally, abstract accounting systems) to be maintained where no one is forced to rely on "trusted 3rd parties", which might in fact not prove trustworthy. Banks, governments, and currencies can fail. It's not something I lay awake worrying about, but we know from history these things happen from time to time. So, the idea that it is technically feasible to implement a currency independent of a bank, or even a govt, is an interesting possible solution to that problem.

On that topic, it is worth noting that actual implementations that were compromised were implemented using short-cuts for computing scalability. Which brings up a legitimate problem with bitcoin: it's computationally expensive.

2) Although "real" identities can be private, transactions themselves are in fact much more transparent than with traditional cash. So in that respect, there is *more* transparency with bitcoin currencies, although people so far fixated on the fact that criminals can transact using private identities. (Guess what else criminals use much more than bitcoins, that is also anonymous and even harder to trace: cash)

3) It operates efficiently and securely over the internet.

For this to work properly, you have to do it right. So far, there have been short-cuts and mismanagement.


Going back to your argument, I think there's a legitimate case to be made that this is a solution in search of a problem, in the sense that traditional money is generally working well enough these days. After all, I get paid and spend dollars, like most people. Still, traditional currencies can go off the rails in various ways. I think it would be interesting, and maybe even helpful, to have another currency that operates independently of any govt. Out of pure curiosity, I'd like to see what happens if that ever succeeds.

[pnwmom]

31. Two of these bitcoin operations just failed. How can you say this scheme

avoids trusted third parties? Or that they're more trustworthy than regulated banks, which "can fail"?

You are assuming the best of all worlds for bitcoins -- a world that operates efficiently and securely without short-cuts and mismanagement. Why should anyone ever assume that? Especially after what we've already seen?

The idea that there can be some completely trustworthy currency operating outside of regulation is just a pipe dream. And the idea that there should be such a currency, not subject to taxation, is a libertarian -- but not a progressive dream.

[phantom power]

34. I don't really have a problem with the idea of regulating it.

As for our banks, would you not say that banksters defrauding the world of trillions of dollars has been sort of a constant topic here, since 2008?

Bank failure and fraud isn't exactly hypothetical.

[Heywood J]

32. Except that the overwhelming use for cash and USD is not to conduct drug transactions.

Take those away and what's left of the market for Bitcoin?

If the fact that someone somewhere took a shortcut or didn't complete a full long-form computation makes the currency crash, and if the system has to rely on everyone being perfect and altruistic, it's not much of a system at all. Ask the former USSR about that.

[yurbud]

36. why can't you have a currency based on a cheap (but not worthless) commodity?

Like water or reusable shopping bags or something?

That value would be pretty stable without the Fed manipulating interest.

And though few would want to, it could be converted back to the commodity (if you had a tanker truck).