Noriel Roubini: „Blockchain is the most over-hyped – and least useful – technology in human history. The real revolution in financial services is FinTech and it has nothing to do with Blockchain or Crypto.”

16 octombrie 2018

„The financial-services industry has been undergoing a revolution. But the driving force is not overhyped blockchain applications such as Bitcoin. It is a revolution built on artificial intelligence, big data, and the Internet of Things.”, said Noriel Roubini, Professor of Economics at the Stern School of Business at New York University, in a Testimony for the Hearing of the US Senate Committee on Banking, Housing and Community Affairs On “Exploring the Cryptocurrency and Blockchain Ecosystem”.

You can find below the full document called „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 – October 2018”.

„Chairman Crapo, Ranking Member Brown and members of the committee, thank you for the opportunity to testify today on the topic
of the Cryptocurrency and Blockchain Ecosystem.
My name is Nouriel Roubini and I am a Professor of Economics at the Stern School of Business at New York University. I am an expert of the global economy, international financial markets, asset and credit bubbles and their bust, and the related financial crises. I was one of the few economists warning about and predicting in advance the Global Financial Crisis of 2007-2009 and I am one of the leading global scholars on the topic of bubbles and financial crises. My most recent book “Crisis Economics: A Crash Course in the Future of Finance” is a seminal treatise on the topic of asset bubbles and financial crises. I have written dozens of papers and other contributions on the topic of bubbles and their bust and the causes and consequences of financial crises.

Crypto Bubble (2017) and Crypto Apocalypse and Bust (2018)
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.

A chart of Bitcoin prices compared to other famous historical bubbles and scams – like Tulip-mania, the Mississippi Bubble, the South Sea Bubble – shows that the price increase of Bitcoin and other crypto junkcoins was 2X or 3X bigger than previous bubbles and the ensuing collapse and bust as fast and furious and deeper.

Bitcoin rapidly exploded in 2017 from $1k to 10K and then peaked almost at $20K in December 2017 only to collapse to below $6k (down 70% from that peak) in a matter of four months and it has been close to $6k since then. And a 70% capital loss was a “good” deal compared to thousands of alt-coins (otherwise better known as shitcoins) that have lost on average 95% of their value since the peak. Actually calling this useless vaporware garbage a “shitcoin” is a grave insult to manure that is a most useful, precious and productive good as a fertilizer in agriculture. (My apologies to the members of the Senate Banking Committee for using the scatological term “shitcoin” but the term is standard in the crypto jargon and there are more than 500000 references to it in a Google search of this technical term.)

Now that the crypto bloodbath is in full view the new refuge of the crypto scoundrels is “blockchain”, the technology underlying crypto that is now alleged to be the cure of all global problems, including poverty, famines and even diseases. But as discussed in detail below 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.

The entire crypto-currency land has now gone into a crypto-apocalypse as the mother and father of all bubbles has now gone bust. Since the peak of the bubble late last year Bitcoin has fallen by about 70% in value (depending on the week). And that is generous. Other leading crypto-currencies such as Ether, EOS, Litecoin, XRP have fallen by over 80% (or more depending on the week). While thousands of other crypto-currencies – literally scam-coins and scam-tokens – have fallen in value between 90% and 99%. No wonder as a recent study showed that 81% of all ICOs were scams in the first place, 11% of them are dead or failing while only 8% of them are traded in exchanges. And out of this 8% the top 10 coins traded – after Bitcoin – have lost between 83% and 95% of their value since peak with an average loss of over 90%. This is a true Crypt-Apocalypse. No wonder that a recent study this week argued and conclude that the crypto industry is on the “brink of an implosion”.2

No asset class in human history has ever experienced such a rapid boom and total utter bust and implosion that includes thousands of different crypto-assets.

Crypto is not money, not scalable
To be a currency, Bitcoin – or any crypto-currencies – should be a serviceable unit of account, means of payments, and a stable store of value. It is none of those things. No one prices anything in Bitcoin. Few retailers accept it. And it is a poor store of value, because its price can fluctuate by 20-30% in a single day. And since its price has been so unstable or volatile almost no merchant will ever use it as a means of payment: the profit margin of any merchant can be wiped out in a matter of minutes – if he or she accepts Bitcoin or any other cryptocurrency–by the change in the dollar price of a crypto-currency. Proper means of payments need to have stable purchasing power; otherwise no one will ever use them.

As is typical of a financial bubble, investors were buying cryptocurrencies not to use in transactions, but because they expected
them to increase in value. Indeed, if someone actually wanted to use Bitcoin, they would have a hard time doing so. It is so energy-intensive (and thus environmentally toxic) to produce, and carries such high transaction costs, that even Bitcoin conferences do not accept it as a valid form of payment. Paying $55 dollars of transaction costs to buy a $2 coffee cup is obviously never going to lead Bitcoin to become a transaction currency.

Until now, Bitcoin’s only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering. Not surprisingly, G20 member states are now working together to regulate cryptocurrencies and eliminate the anonymity they supposedly afford, by requiring that all income- or capital-gains-generating transactions be reported. Even the US Treasury Secretary Steve Mnuchin has publicly stated that we cannot allow crypto-currencies to become the next Swiss bank account.

Since the invention of money thousands of years ago, there has never been a monetary system with hundreds of different currencies
operating alongside one another. The entire point of money is that it allows parties to transact without having to barter. But for money to have value, and to generate economies of scale, only so many currencies can operate at the same time.

In the US, the reason we do not use euros or yen in addition to dollars is obvious: doing so would be pointless, and it would make the
economy far less efficient. The idea that hundreds of cryptocurrencies could viably operate together not only contradicts the very concept of money with a single numeraire that can be used for the price discovery of the relative price of thousands of good; it is utterly idiotic as the use of multiple numeraires is like the stone age of barter before money was created.

The real revolution in financial services is FinTech and it has nothing to do with Blockchain or Crypto
The financial-services industry has been undergoing a revolution. But the driving force is not overhyped blockchain applications such as Bitcoin. It is a revolution built on artificial intelligence, big data, and the Internet of Things.

Already, thousands of real businesses are using these technologies to disrupt every aspect of financial intermediation. Dozens of onlinepayment services – PayPal, Venmo, Square and so forth – have hundreds of millions of daily users in the US. Billions more use similar low cost, efficient digital payment systems all over the world: Alypay and WeChat Pay in China; UPI-based systems in India; M-Pesa in Kenya and Africa. And financial institutions are making precise lending decisions in seconds rather than weeks, thanks to a wealth of online data on individuals and firms. With time, such data-driven improvements in credit allocation could even eliminate cyclical creditdriven booms and busts.

Similarly, insurance underwriting, claims assessment and management, and fraud monitoring have all become faster and more precise. And actively managed portfolios are increasingly being replaced by passive robo-advisers, which can perform just as well or better than conflicted, high-fee financial advisers. Now, compare this real and ongoing fintech revolution that has nothing to do with blockchain or crypto-currencies with the record of blockchain, which has existed for almost a decade, and still has only one failing and imploding application: cryptocurrencies.” …

Download the full document: Testimony for the Hearing of the US Senate Committee on Banking, Housing and Community Affairs On “Exploring the Cryptocurrency and Blockchain Ecosystem”

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