Nouriel ‘Dr. Doom’ Roubini Argues Against Crypto at Senate Hearing
Economist Nouriel Roubini is kicking cryptocurrencies while they are down. In his testimony today before the Senate Banking Committee today at a crypto and blockchain hearing, Roubini argued that cryptocurrencies are “the mother of all scams and (now busted) bubbles.”
The timing of today’s hearing before skeptical U.S. Senators couldn’t have been worse, with the broader cyrpto market having shaved billions of dollars from its value overnight. Roubini took advantage of the current sell-off, using it to his advantage and pointing to double-digit declines in leading coins like “ETH, XRP and other key cryptocurrencies.” The ETH price is currently barely holding above $200, while XRP is down by 13%, with the total value of the market hovering at $201 billion.
The Crypto Meltdown & Apocalypse continues. Yesterday ETH, XRP & other key crypto-currencies plunged another 10% for a total loss from peak of 90%. Crypto is in total meltdown but all the panicking scammers, bots, shills, trolls, criminals, carnival barkers are out to attack me!
— Nouriel Roubini (@Nouriel) October 11, 2018
Chief among Roubini’s argument is that cryptocurrencies aren’t scalable and that there is “massive centralization” in an “oligopoly” that’s extremely risky. In fact, in recent days, he accused Ethereum Co-Founders Vitalik Buterin and Joseph Lubin of being “criminals” for their ETH holdings and wealth. Buterin fired back, hitting Roubini — who earned the nickname Dr. Doom for predicting the housing crisis of 2008 — where it hurts.
I officially predict a financial crisis some time between now and 2021.
Not because I have any special knowledge or even actually think that, but so that I can have a ~25% (or whatever) chance of later being publicly acclaimed as "a guru who predicted the last financial crisis".
— Vitalik Non-giver of Ether (@VitalikButerin) October 10, 2018
Senators peppered Roubini and Peter Van Valkenburgh, who is the director of research at Coin Center, a nonprofit dedicated to protecting the open blockchain networks, with questions about bitcoin. They were seemingly looking for a way to distinguish between opportunities for technological innovation, e.g. crypto derivatives, and challenges surrounding regulation and scams.
U.S. Senators are open-minded about hearing about use cases for crypto and blockchain technology that can help the unbanked but appear skeptical about profit potential in light of this year’s 70% downturn in the BTC price and the ability to stamp out scams.
Meanwhile, Roubini may be an expert on the economy, but he knows enough about cryptocurrencies and the community that he refers to as “crypto land” to be dangerous. The blockchain, he stated is “nothing more than a glorified database.” He complained about the blockchain only being able to handle five transactions per second, adding that 80% of mining is controlled by an oligopoly.
But in defense of the crypto market, Van Valkenburgh frequently gave Mr. Roubini a wake up call on topics like TPS in which he rebutted:
“We can do a lot more. There are multiple layers being built on top of Bitcoin today that do [robot-powered] batch settlement” in which thousands of transactions can be completed.
As for Roubini’s argument about centralization, Van Valkenburgh quipped that miners with power “can’t do much.” For instance, the number of bitcoins in circulation is fixed, so they can’t change that. Also, they “can’t reallocate or move other people’s funds on the blockchain.” The worst they can do, he stated, is to “slow down the network” via a denial-of-service attack, which is the internet is similarly vulnerable to.
The instability in cryptocurrency market prices this year was the elephant in the room. But as investors in any emerging asset class could attest to, there can be a “struggle to price something new,” said Van Valkenburgh, pointing to “irrational exuberance” that had, in fact, gripped the market. But institutional capital beginning to come off the sidelines, into bitcoin first and eventually other digital currencies, which is a sign of a maturing market. “We could use ETFs regulated by the SEC. We could use better [custodial solution] in general,” he added.
U.S. Senators questioned Roubini and Van Valkenburgh about the risks for Main Street investors. One Senator described that while the Winklevoss twins may be able to shoulder the risk, families risking their savings may not.
The profile of the average cryptocurrency investor, however, is someone who is “technologically sophisticated” as they must know how to manage public and private keys, Van Valkenburgh explained. The market is attractive to millennials, which reflects the ideal time to take investment risk in someone’s life.
Meanwhile, crypto exchanges have adopted “know-your-customer” standards for consumer protection. One shortfall is these companies must gain a money transmission license on a state-by-state basis, which is a cumbersome process. As a result, a federal license that encompasses a solution for market manipulation “would be a wise choice to make America a leader and protect our consumers,” Van Valkenburgh said.
While the Senate hearing on crypto may have taken place on a tough market day, the price declines are rivaled by the fact that bitcoin, while imperfect, is working.
Featured image courtesy of Shutterstock.