Crypto Report - Nouriel Roubini vs. Blockchain : Total KO

Nouriel Roubini aka Dr. Doom yesterday asked through a mutual friend for my impression on the remarks he made in a keynote he gave earlier this year. As everyone in the cryptospace is fully aware, Roubini and others such as Warren Buffett and Jamie Dimon who agree that bitcoin (BTC) has no value and blockchain is useless are up against a number of prime movers such as Ari Paul, Nick Szabo, Erik Voorhees, Naval Ravikant, Charlie Shrem, Barry Silbert, and Tushar Jain who lead every new technological revolution. Roubini had a recent debate, a public one with Ethereum's creator Vitalik Buterin and a private one with CoinMetro's Kevin Murcko. Had Buterin been more skilled in the art of debate, the debate would not have been declared a draw.

Here now are some of the choice views of Roubini with my rebuttals:

=He speaks only of the recent 2017 bubble in BTC as definitive that BTC's price rise is over, yet BTC has had a number of other major bubbles where BTC even fell as much as -94% on two separate occasions but always, unlike all other assets before it, managed to make new highs each time.

=He speaks of all alt coins as shitcoins and blockchain as useless yet a number of alt coins have legitimate blockchain technologies. I guess Google and Oracle are stupid for doing a major deal with alt coin company Chainlink for their decentralized oracle technology which bridges the trust gap between on-chain and off-chain transactions.

=He rightly says that 95% of crypto trading volume is fake. The 95% fake volume does not take away from how much more liquid the cryptospace is overall at a valuation above $300 billion than it was back in 2013 when valuations were well under $10 billion. Thus trading volume has grown exponentially along with the value of the cryptospace.

=He rightly says there is price manipulation. Stocks get routinely manipulated via trading algos, high frequency trading, and the like. So what? That's the way certain assets trade. Such manipulations always have and will continue to exist. It is the way market inefficiencies are exploited. I have written how it is important for traders and investors to take a bigger picture approach as big money is made by riding the major trends. That's how William O'Neil in stocks and Ed Seykota in futures, both interviewed in Jack Schwager's investment classic Market Wizards, made their fortunes. Over 95% of crypto traders lose money because they get caught up in all the noise of short term moves in BTC and other cryptocurrencies.

=He says criminality in BTC is 10-times what it is in any other instrument. But just as with volatility, criminality will also diminish just as happened with the internet which in the early to mid 1990s was largely motivated by pornography, credit card fraud, and other activities. Further, governments are waking up to how blockchain dramatically increases transparency which can ultimately reduce money laundering. Even privacy coins such as Dash are being acknowledged as legitimate currencies by countries such as the Philippines.

=He says BTC has no unit of account. BTC is a fungible, immutable unit of account that cannot be double spent or seized while its ledger maintains a decentralized permanent record of all accounts and transactions available to everyone on the planet at any time forever. QED.

=He says BTC has no means of payment. Mass adoption for the majority of businesses to accept BTC takes time. In the meantime, BTC's killer app is its store of value. BTC's level of security, immutability, unhackability, hash rate, and privacy remain unsurpassed. These factors will be further strengthened as adoption continues to double each year. Means of payment will be the final stage of mass adoption as BTC matures in the coming years. While fiat may co-exist with BTC, BTC may become the main use case to transact value without borders outside the hands of government control.

=He speaks as if blockchain technology is static. He says says Visa does orders of magnitude more transactions per second than BTC. But layer 2 technologies will vastly increase BTC's efficiencies. Stellar is another blockchain protocol that already does more transactions per second than SWIFT. Lends credibility to the notion that Roubini is being paid off to spout such nonsense because could anyone be that thick?

=He says BTC has no value while being unstable and volatile. On July 11, 2019, Federal Reserve Chairperson Jerome Powell said during his testimony to Congress the following: "Really, almost no one uses BTC for payment, they use it more as an alternative to gold really. It's a store of value; it's a speculative store of value like gold." This is important since other central bankers typically take a cue from the U.S. Federal Reserve in terms of interest rate policy. More importantly, companies such as CoinMetro are addressing the bottleneck issue between crypto and fiat by providing an efficient platform that enables borderless transactions between the two. Such entities which have stayed in step with regulations fulfill Powell's vision, thus effectively serve as both crypto-fiat banks as well as exchanges / prime brokerages.

As for Bitcoin's volatility, it is set to diminish as bitcoin grows in value, expands its utility and greater adoption takes place. It took bitcoin about 10 years to reach 1% adoption. Since bitcoin's usage doubles each year, it will reach mainstream adoption over the next several years. Back in 2011-2014, bitcoin would easily move several percent or more in a day, yet the media paid little attention since these were typical price moves back then. Today, if bitcoin even moves 3-4%, the media sees this as a major move.

=He says no business should accept bitcoin as a means of payment because its price can drop 30% in a few days. Yet services have been in place since 2013 that immediately transact out of bitcoin and into fiat to remove the exchange rate risk for the business that accepts bitcoin.

=He says if you lose your private key, your money is gone forever. But there are already novel solutions that solve this issue.

=He says most miners are concentrated in China and Belarus thus bitcoin remains vulnerable to 51% attacks. Here is my response that put this misunderstanding to bed once and for all.

=He says most trading occurs on centralized exchanges. Certainly, there have been numerous hacks, more in earlier years than currently. The most reputable exchanges such as Bitstamp have always refunded customers who lost out due to a hack. The space is still young so, just as with the internet and credit card fraud back in the mid-1990s until Verisign came along, new technologies will make successful hacks a thing of the past. Indeed, the price of bitcoin used to get knocked down double digit percentages overnight on news of a major hack. This year, bitcoin and alt coins in general have shown a far greater resilience and desensitivity to hack attacks. Major exchanges made any hacked customers financially whole. But let's also not forget the rise of decentralized exchanges (DEXs) which will co-exist with centralized ones. Certainly, some will prefer the anonymity and ease and eventually liquidity of DEXs but others will always prefer centralized platforms as more traditional and secure. There is psychological comfort in knowing you can contact a reputable exchange to address any issues.

=He mentions a number of things that have gone wrong in the cryptospace as justification that the whole space is invalid. That's like saying back in 1995 that since your credit card was hacked on the internet, the whole internet is invalid. New technologies will always have setbacks but civilization would have never advanced if such attitudes were taken seriously.

=He says tokenization is a joke, worse than the Flintstones in the stone age. He says if you have a different token for every good and service, you collapse the function of money. Tokenization is not barter. It is a way to bring fresh liquidity into various investible assets and structures. This is why the ex-CEO of the NASDAQ stock exchange said in 5 years all stocks will be tokenized.

=He says there are no killer apps in the cryptospace. He says 75% of DAPPs are either cryptokitties or casino games or Ponzi schemes, while the remaining 25% are DEXs that no one uses so there is no liquidity. Of course, as more migrate onto DEXs, liquidity will increase. In the early days of p2p file sharing in the 1990s, there were far fewer offerings and illiquid rates of exchange as the number of seeders was small by comparison to the number in existence today. Building a network of users and/or traders takes time.

=He says crypto is just a scam, laden with criminal activity, much as was said of the internet back in 1993-5.

=He says most blockchain platforms are not blockchain as they are centralized. He says no company would put information on a public blockchain. He says Visa, Mastercard, and others say blockchain does not save them any money. Yet companies such as Facebook's Libra have shown that reducing Visa and Mastercard fees while providing more efficient transactions can increase Facebook's revenue by up to half of what they make in ad revenues.

The transaction processing capacity of blockchain is lagging behind mature systems such as those used by Visa and Mastercard. If we produce energy at lower cost, we will be able to feed the massive amount of computing power for ML and AI as both further digitize problem solving. Crypto is solving problems and increasing the efficiency of patterns through digitization. Roubini denies in his tendentious speech that the global computer power at increasing efficiencies through digitization continues to evolve. Sure, cons and fraud are part of human nature and thus the double-edged sword that is tech. Bounty hunters arose to slay the fraudsters and hackers. But cooperation and competition will result in better tech which will drive down costs. Roubini lives in a world of inflationary inflicted underlying value only. He doesn't allow for networks to evolve and create utility. He likes centralization because such platforms are credible, but he denies the utility in a large number of people outside of centralized authority to contribute in a collaborative and competitive manner through new solutions. He is the ultimate progressive authoritarian, a champagne socialist. Monty Python's movie Life of Brian delivered the timeless message that the more primitive side of human nature is exactly this.

Generational Differences

Just as with other cutting edge technologies, governments and major institutions as a general rule are the slow animals in the herd. The old guard are completely unprepared for the tsunamic wave of impending S-Curve technologies including blockchain because they don't understand the basics about how the technology or ecosystem function. That said, some Blockchain has the Lindy effect and Metcalfe's Law on its side.

The younger the generation, as a general rule, the deeper the understanding of new, cutting edge tech. Thus, the younger not only make better use of it, but are also able to develop it further. Anyone remember how kids had to teach their parents how to program a VCR? How many decades did it take the older generation to start using e-mail after it had been around since the late 1970s? What about free video chatting and legal free phone calls? What about mobile phones which Roubini testified were useless at a Senate hearing in 1991? Indeed, some are far better positioned to flourish in the rapidly evolving economy than professors who teach at Harvard or run the World Bank or the IMF.


Taken from a prior article:

So when crackpots such as Nouriel Roubini say Venezuela is a one-off exception, they clearly lack not only a grasp of history but are also not understanding the transformation that is taking place. Indeed, the millions of families in Venezuela as well as Argentina, Brazil, Turkey, Sudan, and South Africa who have embraced and utilized BTC to rescue or at least stabilize their life savings are a consequence of where the world stands economically. As the contagion spreads, this can only serve to further prop alt-currencies such as BTC and gold.

An analysis of fiat currencies in the 20th century found that 56 currencies suffered hyperinflation. Another study found that the average life expectancy for fiat currency is 27 years. 20% failed through hyperinflation (37 currencies experience hyperinflation in the 20th century), 21% were destroyed by war, 12% were destroyed by independence, 24% were monetarily reformed, and only 23% are still in circulation.

Of the 23% that remain in circulation, all have lost most of their value when measured against gold. The British pound today is worth about 0.5% of its original value while the U.S. dollar has lost about 97.5% of its value since 1971 when it was taken off of the gold standard in 1971 when it was 1/35th an ounce of gold. 

Other choice statements and predictions from Roubini: 

=Roubini is known as Dr. Doom for predicting the recession in 2008. But he also predicted a recession in 2004, 2005, 2006, and 2007. He was simply wrong four years in a row. Eventually, in 2008, his prediction and desired outcome finally came true. Even a stopped clock tells the right time twice a day. The economist Anirvan Banerji has suggested Roubini is the boy who cried wolf. I could not agree more.

=Next in 2009 after the financial collapse, Roubini went on to say that stocks were engaging in a sucker's rally and maintained this position despite one of the longest bull markets on record that began in early 2009. In fact, the NASDAQ Composite and S&P 500 had near-record returns in 2009, both up in the high double digit percentages.

=Leading commodity investor Jim Rogers was "flabbergasted" by Roubini's declaration in 2010 of a broader commodities bubble that was about to burst, observing that "for Mr. Roubini to talk about a bubble in commodities defies comprehension. It proves he does not understand markets." If so, it seems likely that Mr. Roubini is too ensconced in his Ivory Tower.

=His lack of understanding, however, has been evident much earlier. At a Senate Hearing in 1991 at the dawn of the mobile phone industry, Roubini is recorded as saying: "Dear Mr. Chairman and ranking members of the committee. Thank you for being smart enough to ask me to testify on these stupid new things called “cellular phones.” My name is Nouriel Roubini. I am a world renowned professor of economics and one of the few people to predict the 1987 stock market crash."

In consequence, I won't belabor Roubini's remarks on blockchain which he calls useless technology, as all his previous predictions should have been taken with such a large amount of salt. I wish him well as he is a charming chap and I’m sure he owns a rather smart mobile phone.