Welcome crypto enthusiasts, crypto haters and those who are undecided about cryptocurrencies. I appreciate you taking the time to read this article.
I am sure that many of you are aware that Nouriel Roubini testified before the US Senate committee on banking, housing and community affairs on Oct. 11th, 2018. In his testimony he tore into bitcoin and cryptocurrencies in general calling them the mother of all bubbles. But before we get too far into how much he hates cryptocurrencies we should investigate some of Nouriel Roubini’s credentials to get an idea of who he is and what makes him qualified to testify before this committee about cryptocurrencies.
He was born in Turkey in 1958 but grew up mostly in Italy, he received a BA in political economics at Bocconi University, Milan and a doctorate in international economics at Harvard University. He taught at Yale and was a visiting researcher/advisor at the International Monetary Fund (IMF), the Federal Reserve, World Bank, and Bank of Israel.
He was a senior economist for the Council of Economic Advisers
He later worked at the United States Treasury Department as a senior adviser to Timothy Geithner
He now teaches at New York University's Stern School of Business and is also the chairman of Roubini Macro Associates LLC, an economic consultancy firm.
I have to say the guy has some serious credentials! But I’m still not sure why he was chosen to testify before the Senate committee about cryptocurrencies other than for his absolute hatred of them.
Also, Nouriel Roubini got the nickname Dr. Doom for his gloomy predictions leading up to the financial crisis. I must give him credit he did make an accurate prediction there but from what I have read he also predicted recessions in 2004, 2005, 2006 and 2007, so there is that.
So, getting back to his testimony here is one of his quotes, “It is clear by now that Bitcoin and other cryptocurrencies represent the mother of all bubbles, which explains why literally every human being I met between Thanksgiving and Christmas of 2017 asked me first if they should buy them. Especially folks with zero financial literacy – individuals who could not tell the difference between stocks and bonds – went into a literal manic frenzy of Bitcoin and Crypto buying. Scammers, swindlers, criminals, charlatans, insider whales and carnival barkers (all conflicted insiders) tapped into clueless retail investors’ FOMO (“fear of missing out”), and took them for a ride selling them and dumping on them scammy crappy assets at the peak that then went into a bust and crash – in a matter of months - like you have not seen in any history of financial bubbles”.
Following his testimony, he came out with numerous Tweets further expanding on his hatred of cryptocurrencies and those involved in them. Below are quotes from a couple of his tweets.
“99% of crypto land is one shitcoin traded for another shitcoin. And the average shitcoin lost 90% or more of its value in the last year. So Crypto Land is Crap Land, a cesspool of lunatics with severe Freudian scatological obsessions that swim 24/7 in their stinking shit.”
“Ideology of crypto is right wing white supremacist “black helicopters” paranoia & conspiracy about centralized evil governments, central banks, bank, jews, corporations, trusted institutions that need to be destroyed & replaced by libertarian decentralization. Fascist at core!”.
He not only hates cryptocurrencies he also hates blockchain technology saying the following, “blockchain is the most over-hyped – and least useful - technology in human history: in practice it is nothing better than a glorified spreadsheet or database”.
Okay, I could go on and on, but I think we can clearly see that he hates everything about cryptocurrencies and blockchain technology. What I don’t understand is where all of this extreme vile hatred comes from, I can totally understand someone not liking cryptocurrencies or the technology for one reason or another but to say that people involved in the crypto space are a cesspool of lunatics swimming in their own stinking shit! Dude come on, you don’t need to make it personal! I have to say that in my opinion anyone who talks like this must be a little unbalanced.
I would say that my views on cryptocurrencies and blockchain are virtually at the opposite end of the spectrum from Nouriel Roubini’s. One huge difference is that I don’t paint the whole crypto space or blockchain with a broad brush saying that everything is prefect. I recognize that there are issues, some of them serious, that need to be addressed in both cryptocurrencies and blockchain technology. That is what is so frustrating for me when I hear him speak or read one of his tweets, parts of what he is saying carries some true. What frustrates me is that he appears to be so closed minded and paints the whole space with such a broad brush. He points out some obvious problems that exist and then says because of these the whole crypto space and blockchain is absolute shit. I still cannot understand why he feels the need to speak with such hatred and extreme views. The only explanation I can come up with is that because of his close ties to traditional monetary institutions throughout his career the old fiat system has become deeply ingrained into his soul and now he cannot even comprehend any other type of monetary system. Also, it is possible in my opinion that he feels cryptocurrencies could pose a real treat to the fiat system that he holds so dear, or possibly he is just an angry white dude who hates everything.
So, obviously I don’t want this article to end up being too long, so I won’t try to push back at every criticism that he makes, because as I said some of what he says is true. Instead I will focus on his broad statements like calling cryptocurrencies “the mother of all bubbles that then went into a bust and crash — in a matter of months — like you have not seen in any history of financial bubbles.”
Okay, so first let’s examine the 2017/2018 cryptocurrency boom and correction cycle. At the beginning of 2017 the cryptocurrency market had a total market capitalization of around $18 billion and by January of 2018 it had expanded to over $830 billion for an increase of over 4500%. Just looking at bitcoin alone its price increased from right around $1000 at the beginning of 2017 to $19,891 (Bitfinex) on December 17th for an increase of almost 1900%. After peaking bitcoins price has fallen steadily hitting a low (so far) of $5755 (Bitfinex) on June 24th, today it sits at around $6600. The cryptocurrency market capitalization after peaking has also dropped over a period of about 8 months to a low of just over $165 billion. So, summing it up bitcoin from the peak to low lost about 71% of it’s value and the total market capitalization dropped by about 80%, there were also many other cryptocurrencies that lost 90% or more of their value.
So, as you can see there clearly was irrational exuberance in the cryptocurrency markets late in 2017 and into early 2018 which culminated in a severe correction. Where I disagree with Mr. Roubini is when he calls it a bust and crash like you have not seen in any history of financial bubbles. My first point would be that for cryptocurrencies or bitcoin in particular this is nothing new, this is not the first time this has happened and likely will not be the last time. Bitcoin went through a very similar boom and correction cycle starting in 2013 that lasted until almost the end of 2015. From a low of $63 on July 6th bitcoins price skyrocketed to $1175 on December 4th for an increase of 1765%. After peaking bitcoins price steadily dropped to a low on January 13th, 2015 of $166.50 for a loss of almost 86%.
I am pretty sure that Mr. Roubini in the summer of 2015 would have been making the same claims as he is now, “bitcoin is the mother of all bubbles” “bitcoin is a scam” “bitcoin is dead” and so on. But look at what has happened since, looking at the price chart of bitcoin today the 2013 peak looks like nothing more than a small bump and in my opinion a few years from now the 2017 peak may also appear as just a small bump on the overall price chart.
Looking at the facts, I come up with totally different conclusions than Mr. Roubini.
1) The price of bitcoin today even after suffering through a severe correction of over 70% is still substantially higher than it was before the 2017 boom.
2) Although there are obvious issues, many of them are being addressed and in my opinion will be eventually solved. After all we must remember that this asset class and technology are still in their infancy and as such I would expect there to be growing pains.
3) Major corporations are investing millions of dollars to explore the opportunities that blockchain has to offer. Companies across the world are eager to integrate some version of blockchain technology into their company, the overall number of patents and applications for 2018 is expected to be around 1,245 up from 313 two years ago.
4) Over the last year institutional money has begun flowing into the crypto space. The CBOE and the CME group both offer bitcoin futures trading, ICE who is the parent company of the NYSE is planning to launch bitcoin futures trading on its Bakkt platform in December.
So, as you can see there is real growth taking place and if as Mr. Roubini says cryptocurrencies are shit and the blockchain is nothing but a glorified spreadsheet or database you would not see this enormous amount of investment by major corporations.
As far as his claim that this last cryptocurrency bubble was the mother of all bubbles like you have not seen in any history of financial bubbles. Perhaps Mr. Roubini has forgotten about that little thing called the dot-com bubble, I would like to give him the benefit of the doubt here, otherwise it means he is being intellectually dishonest and purposely choosing to ignore it. I would argue that the dot-com bubble dwarfs anything bitcoin or the whole cryptocurrency market has ever gone through.
For anyone not familiar with the dot-com bubble it was a period of historic economic expansion and excessive speculation that occurred from the mid 1990’s to 2000, resulting from extreme growth in usage and adoption of the internet. Between 1995 and 2000 the Nasdaq 100 stock market index rose over 1100%, the share price of many tech stocks rose by a 1000% or more with the share price of Qualcomm increasing by 2619%. On March 24, 2000 the Nasdaq 100 stock market index peaked at 4816.30 then the bubble burst. The dot-com crash lasted from March, 2000 to Oct. 9, 2002, during this time many online shopping companies and communication companies failed and shut down. By November 9, 2000, most internet stocks had lost up to 75% of their value wiping out $1.755 trillion in value. By the end of the stock market downturn in 2002 stocks had lost $5 trillion in market capitalization since the peak, by October 9. 2002 the Nasdaq 100 stock market index had dropped to 795, down over 83% from its peak.
So as a comparison you have the dot-com bubble that wiped out about $5 trillion in market capitalization value vs the cryptocurrency bubble that wiped out about $600 to $700 billion in market capitalization value. You can come to your own conclusion but to me there is no comparison.
He also said that scammers, swindlers, criminals, charlatans, insider whales and carnival barkers (all conflicted insiders) tapped into clueless retail investors’ FOMO (“fear of missing out”) and took them for a ride selling them and dumping on them scammy crappy assets at the peak that then went into a bust and crash. If he honestly does not think this exact same thing went on during the height of the dot-com bubble then he is either blind, ignorant or both. I would also argue that what he describes is the very thing that has happened and continues to happen all the time in the penny stock market where shell companies listed on the OTC market or pink sheets are pumped by experienced individuals or groups daily, sucking in inexperienced investors usually at the top, leaving them holding the bag or with big losses when the stock price dumps.
I am going to wrap this up as it has already become much longer than I had intended. But before I do I want to leave you with a quote that was written about the dot-com bubble, but which I believe is also very relevant to what has gone on and is still happening in the crypto space.
In a 2015 book, venture capitalist Fred Wilson, who funded dot-com companies and lost 90% of his net worth when the bubble burst, said about the dot-com bubble:
"A friend of mine has a great line. He says, 'Nothing important has ever been built without irrational exuberance'. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever. And in this case, much of the capital invested was lost, but also much of it was invested in a very high throughput backbone for the Internet, and lots of software that works, and databases and server structure. All that stuff has allowed what we have today, which has changed all our lives... that's what all this speculative mania built"
For anyone who wants to check out Nouriel Roubini further here is the Wikipedia link: https://en.wikipedia.org/wiki/Nouriel_Roubini
For more information about the dot-com bubble click on this Wikipedia link: https://en.wikipedia.org/wiki/Dot-com_bubble
I hope you found this article interesting and thought provoking.
Until the next one, take care!
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