When technology and economics collide

Over the last week or so, former International Monetary Fund, World Bank and Federal Reserve employee Nouriel Roubini has orchestrated a near-perfect trolling campaign against crypto.

He has conducted his attacks on three fronts: the US Senate, the mainstream media and Twitter.

He isn’t saying anything many members of the old guard haven’t said before. But he is certainly saying it loudly.

Many people have pointed out his lack of knowledge and misunderstanding of what crypto is over the last week. But that hasn’t slowed him down one bit.

His intention, I guess is to repair his reputation. He says as much at the end of his Senate testimony:

Bitcoin or any crypto-asset could go “To The Moon” or crash to zero and I would not make a penny either way. The only thing that is at stake is my personal, intellectual and academic reputation.

Roubini made his reputation by predicting the financial crisis of 2008, and since then has made a career of calling bubbles and crashes.

Only there haven’t been many major ones in a decade.

Enter bitcoin.

In 2014, just as he has today, Roubini set bitcoin in his sights. His tirade back then was very similar to his tirade today. As you can see from his 2014 tweet below:

Unfortunately for Roubini, bitcoin’s price exploded in the years that followed.

On 9 March 2014, at the peak of his last anti-bitcoin campaign, bitcoin was trading at $622.

Today, even after tumbling from its December peak, it’s still worth $6,531.

That means anyone who listened to Roubini in 2014 and sold their bitcoin, or chose not to invest, lost out on the opportunity to multiply their money ten times over.

It’s not that Roubini is lying, it’s just that he is misinformed and out of touch

Given the above, we can see it is definitely in Roubini’s professional interest if crypto fails.

I guess that’s why he titles his Senate testimony paper:

Crypto is the Mother of All Scams and (Now Busted) Bubbles While Blockchain Is The Most Over-Hyped Technology Ever, No Better than a Spreadsheet/Database

Yes. That’s the real title.

His Guardian article on Monday was simply a condensed version of his Senate testimony, with a different headline:

Blockchain isn’t about democracy and decentralisation – it’s about greed

And the same article posted on his column on Project Syndicate was simply called:

The big blockchain lie

The arguments he makes are basically:

  1. Crypto is “the mother of all bubbles and has now gone bust”
  2. Blockchain is nothing more than a glorified spreadsheet
  3. The world of crypto is controlled by “A few self-serving white men”
  4. Crypto is fiat because you can fork it
  5. Wealth in the crypto universe is even more concentrated than it is in North Korea
  6. Crypto should be valued at below zero because it uses a so much electricity
  7. And finally, “there is no institution under the sun – bank, corporation, non-governmental organisation or government agency – that would put its balance sheet or register of transactions, trades and interactions with clients and suppliers on public decentralised peer-to-peer permissionless ledgers.”

I’ll just quickly address these points before I talk about the bigger problem here. That of technology disrupting the old establishment in more and more areas of life.

So very quickly.

1. As I’ve already said, bitcoin is still up 10x from when Roubini first started trash talking it.

And as for the mother of all bubbles, the total losses from peak to trough of the crypto market was around $640 billion. A massive number, yes. But far from “the mother of all bubbles”. $5 trillion was lost in the dotcom bubble.

2. Spreadsheets are not decentralised. So they can be hacked, censored, shut down and interfered with. Blockchain cannot be.

The main benefit of Blockchain is that it solves the problem of trust. It does away with the need for central control and parasitic middlemen.

I wrote about exactly why this technology is so revolutionary here: “Move over blockchain, there’s a new top DAG in town”.

3. Most crypto mining takes place in Asia. And many of the biggest names in crypto are not “white men”.

Given the popularity of crypto in Korea, China and Japan it’s no surprise that many of the major players are Asian in origin. Although, I’m not really sure why Roubini is so fixated on the sex and ethnicities of those interested in crypto.

Tezos, one of the major players in crypto today, was created by a husband and wife team, Arthur and Kathleen Breitman.

But it is definitely fair to say women are underrepresented in the space. However, not as underrepresented as they are in Roubini’s own realm.

Roubini is an economics professor at NYU. And in the US a staggering 86% of economics professors are male.

4. Bitcoin is still bitcoin, even though there have been countless forks. There will only ever be 21 million bitcoin created.

Compare this to how central banks can create money out of thing air with quantitate easing – to the tune of $4.5 trillion in the US’ case. And Roubini’s argument crumbles.

5. On this he has a point. Concentrations of crypto wealth are one of its biggest problems. They allow for massive price manipulation.

6. This just illustrates how little Roubini has chosen to understand about crypto.

Yes, Bitcoin uses massive amounts of electricity. But this is only true of cryptos that rely on a proof-of-work consensus mechanism.

Most newer cryptos either use a proof-of-stake system (like Ethereum will be switching to). Or are based on completely different technology, such as IOTA and NANO, which are based on a directed acyclic graph (DAG).

This means they use virtually no electricity and all of Roubini’s faux environmental arguments can be thrown out of the window.

7. Maersk, Fujitsu, Siemens, Amazon, Microsoft, Samsung and the city of Taipei would disagree. As would countless other companies and organisations.

Roubini has stated that “crypto zealots” have merely insulted him and not rebuked one of his points. But that is a lie. He simply refuses to acknowledge anyone who proves him wrong.

Here and here are two great in-depth critiques of his Senate testimony, if you fancy reading them.

He has become the embodiment of the “old man shouts at bitcoin” meme. But, to be fair to him, some of his trolling is pretty funny:

“Death comes to us all. We can only choose how to face it when it comes.”

Roubini’s tirade highlights an issue many industries have had to face up to in the last decade or so.

That of technology rewriting the rules.

In the past it has happened to the retail industry, the music industry, the film and TV industry, the transport industry, journalism and myriad other smaller industries.

Now it is happening to the finance industry.

In all of these cases many old establishment figures fell by the wayside as technology changed the fabric of their world.

Some, like Roubini and Warren Buffett, refuse to accept the change. Some, like Mike Novogratz and Richard Branson, embrace it.

In the last few months we’ve seen the biggest names in finance beginning to embrace crypto.

As I wrote yesterday Fidelity is setting up a crypto arm to help people invest.

ICE, who owns the New York Stock Exchange and many other exchanges around the world, is launching Bakkt in November.

BlackRock has set up a working group to investigate crypto.

Goldman Sachs is working on a way to get its investors into bitcoin.

And, perhaps most importantly, entire stockmarkets are moving towards tokenising their exchanges. SIX, the company that owns the Swiss stock exchange is building a new platform using cryptos.

In SIX’s own words:

The service will provide a safe environment for issuing and trading digital assets, and enable the tokenization of existing securities and non-bankable assets to make previously untradeable assets tradeable.

When the world changes, when technology comes for your industry, you can either embrace it, or dig your heels in and let it run you down.

It’s clear Roubini has made his choice and is sticking to it. No matter what the evidence or the developments to the contrary might say.

He was wrong in 2014 and he is still wrong now.

And he has staked the most valuable thing he has on his being right: his reputation. As an economist, that’s all he really has to cling to.

In another four years’ time it will be interesting to see whether he has changed his tune or not.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Blockchain

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