“So Bitcoin isn’t a currency. It is [by the way] a Ponzi game and a conduit for criminal/illegal activities. And it isn’t safe given hacking of it.”
So said US economist Nouriel Roubini in a spate of heavily critical comments aimed at the cryptocurrency and its advocates via Twitter on Sunday (9th March).
Roubini, who lectures at the Stern School of Business and heads an economic consultancy firm, has earned himself the nickname ‘Dr Doom’ for his often gloomy economic outlooks.
However, he is not a man to be ignored. Roubini famously predicted the US housing market crash of 2006 and the global financial chaos that ensued.
That there are issues to be ironed out with the young digital currency, even its most ardent advocates would agree, but why the economist has chosen this moment for the attack is not clear.
Mt. Gox woes
The bitcoin world is currently recovering from a spate of high-profile company collapses – most notably that of Mt. Gox, once the world’s largest bitcoin exchange.
Mt. Gox recently declared itself bankrupt, citing the loss of around 750,000 of its clients’ bitcoins to hackers. Similar events have also caused the recent closure of the Flexcoin bitcoin ‘bank’.
In his attack, Roubini compared bitcoin unfavourably with fiat currency, and commented on the Mt. Gox affair:
Hacking of credit cards & bank accounts rare & customers fully repaid for it. Who is going to repay the $1bn BTC fraud at Mt.Gox? No one
— Nouriel Roubini (@Nouriel) March 10, 2014
It should be noted that it has yet to be ascertained that any fraud was involved in the Mt. Gox collapse. CEO Mark Karpeles has admitted only to losing bitcoins stored at the company via theft.
Volatility attacked
Another aspect of bitcoin that Roubini singled out for criticism was its price volatility:
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 — Nouriel Roubini (@Nouriel) March 9, 2014
He reiterated his concerns over price fluctuations with the comment:
Bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥ – Nouriel Roubini (@Nouriel) March 9, 2014
While the volatility of bitcoin has been a concern, recent events (such as the collapse of Mt. Gox) saw more moderate price movements than might have been expected – a sign, many hoped, of the digital currency’s resilience and growing maturity.
For whatever reason, Roubini does seem to have a bee in his bonnet over bitcoin, and even its advocates are not immune from his attack:
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 $
— Nouriel Roubini (@Nouriel) March 9, 2014
Rapid responses
Unsurprisingly, many in the bitcoin sphere are unhappy with Roubini’s remarks. Commenting on Twitter in reply to the economist’s comments, Arturo Villa said:
. @Nouriel Used for criminal activities, Ponzi game, not safe… are you talking about the dollar? (especially under @federalreserve system…)
— Arturo Villa (@ArturoGVilla) March 9, 2014
Miriam Cotton agreed, saying:
@Nouriel Jesus. Disappointing Nouriel. Our financial services and banks have proven themselves ‘safe’? Hack proof? #bitcoin — Miriam Cotton (@mediabite) March 9, 2014
A further Roubini tweet stated: “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.”
Reddit user Beyond_any_therapy replied:
“That’s so funny, because many online retailers accept BTC as payment. It has value to them. So, you’re saying little wealth is in Bitcoin. Last time I checked it was a billion dollar industry.”
Early days
This is not the first time Roubini has criticised bitcoin.
In January, he called it a potential bubble caused by Federal Reserve money printing.
Bitcoin has many notable advocates in the public eye, including Richard Branson, CNBC’s Jim Cramer, and Al Gore, and one US congressman even launched a satirical bid to ban the dollar in response to a senator’s attack on the cryptocurrency.
The fact remains, though, that some mainstream economists have been reluctant to support bitcoin.
Bearing in mind that the currency is in its early years as a financial instrument, criticisms of the digital currency may be 10 years too soon. Perhaps the final word is best left to the famous economist Milton Friedman:
“The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B, without A knowing B or B knowing A.”
Nouriel Roubini image via lev radin / Shutterstock.com