Nouriel Roubini, professor of economics at the Stern School of Business at New York University and CEO of Roubini Macro Associates joined Yahoo Finance to discuss his ideas on bitcoin.
Video transcription
JULIA LA ROCHE: Welcome back to Yahoo Finance Live. We are now accompanied by Nouriel Roubini, NYU economics professor at Stern. Nouriel, it’s always nice to have you.
We would like to share some recent news that has just emerged. We are getting some headlines that President Trump challenged Congress and vetoed the bipartisan defense policy project. In some comments, Trump called the defense policy project a gift for China and Russia.
And, of course, I know that you are someone who looks at geopolitical events. And we are preparing for a new administration in 2021. Your reaction to this news that is passing.
NOURIEL ROUBINI: Well, you know, I mean, the president is going crazy about everything. He is literally trying to deliver a military coup, following the advice of Mike Flynn and others, to subvert the election results.
He does not want to approve the stimulus project. And if he doesn’t, we could end up in a government shutdown. And now, he’s accusing the defense of things that make no sense, you know. He even denied that this major hack attack came from Russia. He claims he came from China without a base. And if there is anything that can really help us to counter our strategic rivals, be it Russia or China or North Korea or Iran, it will be this defense bill.
So, literally, the guy is getting completely unbalanced. It’s just politics. Maybe he’s trying to get ready to run again in 2024. Maybe he’s losing control. I don’t know what’s going on. But almost everything he’s doing doesn’t make sense.
ADAM SHAPIRO: Nouriel –
JULIA LA ROCHE: Nouriel– go ahead, Adam. Go ahead.
ADAM SHAPIRO: Go Julia. It’s all you, Julia.
JULIA LA ROCHE: Well, I would like to change the conversation, and thank you very much for sharing your thoughts on this, for cryptocurrency. Of course, Bitcoin. I think the last time you were there, you got a lot of attention.
I’m just looking at the price of Bitcoin right now. It’s over $ 23,500. And you publish a tweet that Bitcoin has no place in the portfolio of an institutional investor or a retail investor. Still, we continue to see large institutional investors flooding the space. Paul Tudor Jones, for example. Even Anthony Scaramucci. And then, we are also seeing retail investors. Why don’t you deserve a place in a portfolio?
NOURIEL ROUBINI: First of all, to call it a currency is not a currency. It is not a unit of account. It is not a means of payment. It is not a single [? numerator. ?] It is not a stable store of value.
Second, it is not even an asset. Any of the assets has income, use and capital gain, like bonds, like stocks, like real estate. Or, as in the case of precious metals, they do not generate an income. But gold gives industrial use, it gives you [INAUDIBLE] as jewelry and as capital gain. While in the case of Bitcoin there is no revenue, there is no use, there is no use.
The only thing is a kind of self-realized speculative increase. And that increase is entirely driven by manipulation. There has been an academic study suggesting that this pseudo-stable Tether coin is being created by decree. This year alone, the increase in the supply of Tether was another $ 16 billion from the first 4. So there are 20. And every time Bitcoin’s price drops, literally overnight they emit more of this Tether which is used literally to manipulate the price of Bitcoin.
So, the price of Bitcoin is totally manipulated by a lot of people, by a lot of whales. It has no fundamental value. And as in 2017, when it went from 1,000 to double that and, in 18, it dropped from 20,000 to 3,000, I think we are close to the point where this hyperbolic bubble will burst. And it goes bankrupt because law enforcement authorities are investigating Tether and the company behind it.
And in my opinion, as in the case of BitMex which was the biggest fraud and criminal derivative cryptocurrency is being indicted, you can have an accusation of who is behind Tether. When that happens in the coming months, there will be a drop in Bitcoin and all other cryptocurrencies. They are not even coins. They are shitty coins.
ADAM SHAPIRO: Nuriel, I want to divide this into several parts. Because I think many investors with Bitcoin above $ 23,500 today need to pay attention. Why, would I call it contagion, if the feds crack down on that other cryptography, for Bitcoin? And how do you see the fact that central banks around the world are looking to create digital currencies? Are they different from what we see with Bitcoins and other existing cryptocurrencies?
NOURIEL ROUBINI: Well, there are several academic studies, including one from the University of Texas, that show that every time Bitcoin prices are weakening, there is an issue of this Tether. There is literally a stable currency created out of Fiat. There has been no update that these cryptocurrencies are supported by any assets. And it is only printed by the fiat used to buy Bitcoin. So, it’s actually total price manipulation.
There is much evidence that there are other schemes for manipulating cryptocurrencies. There are pump-and-dump schemes, hundreds of channels on Telegram or WhatsApp that are running, that is, wash trading. Virtually everything that is being done by penny stock is done by cryptography and Bitcoin at the power of 10. This is a totally manipulated market. It is not driven by fundamentals. It is run by insiders, criminals, whales, scammers. This is the reality and there is evidence for that. And that is why there are criminal investigations that are going to climax in the coming months.
Second, central banks are going to introduce digital currencies. But in the first place, these digital currencies will have nothing to do with cryptography or blockchain. Today, every private commercial bank has a bank account at the Fed. We, as individuals, are [? non-corporational ?] they are non-financial. We don’t have access to the Fed’s balance sheet.
Suppose that tomorrow we have access to the Fed’s balance sheet. This is what a central bank digital currency means. It is not digital money. Digital money has been around for decades. We have bank accounts, we have bank transfers, we have AliPay, we have WeChat Pay, we have Venmo. We have all kinds of other digital payment systems.
So, the novelty is not that it will be digital. There are thousands of digital payment systems that work around the world. It’s just that we don’t have a situation where individuals like you and I have access to the Fed’s balance sheet. Once we do that, we don’t need to have a bank deposit to make cheap, fast and instant transactions that our payment system clears and settles instantly. So, since we have a central bank digital currency, not just crypto – this rubbish, these shitty coins that have no use for payment. But even other digital payment systems, like bank deposit or Venmo and PayPal, will be dominated by the central bank’s digital currency. And this scheme technologically has nothing to do with cryptography, it has nothing to do with blockchain. It will be centralized. It will be allowed. It will be a private system, not a decentralized public ledger.
Therefore, calling it encryption is not true. It is a digital currency of the central bank. This will revolutionize payment systems and destroy any pseudo cryptocurrency that is not a cryptocurrency and is not a currency.
People don’t know what they are talking about when they are talking about the central bank’s digital currency. They get excited. They say that even central banks will encrypt. Just the opposite. They don’t know what they are talking about.
JULIA LA ROCHE: Nouriel Roubini, professor of economics at Stern of NYU and CEO of Roubini Macro Associates. It is always a pleasure to have you. I wish you a Merry Christmas. And thanks, again.