Nouriel Roubini, an economics professor at New York University, thinks Tether is issuing fake money. And that nothing short of an audit will prove the $30 billion in USDT the BVI-registered company has spewed out into the crypto markets thus far are even 74% backed. (Stuart Hoegner, the firm’s general counsel, claimed they were three-quarters backed in April 2019 court documents.)
Tether is a “criminal enterprise,” he bluntly told reporters on Coindesk TV. In a 10-minute interview, Roubini predicted Tether’s looming demise, called for the SEC to look into Elon Musk’s bitcoin tweets, and claimed that central bank digital currencies will spell the end for crypto.
Dr. Doom, as Roubini is called, talks quickly, doesn’t mince words, and his face barely changes expression. He has a reputation as a perpetual pessimist. Ask him a question, and he will give you a straightforward, often bleak, answer. Though he might argue, he is simply being a realist.
I am not sure why Coindesk had him on their program. Roubini hates bitcoin and his responses elicited laughter—though it wouldn’t be the first time. Roubini “sounded like a madman in 2006,” when he stood before economists at the International Monetary Fund and announced a crisis of solvency was brewing, IMF economist Prakash Loungani told the NYT in August 2008. “He was a prophet when he returned in 2007.”
Anyhow, I transcribed the talk only because I thought Roubini’s points made sense. He was interviewed by Coindesk’s Lawrence Lewitinn, Christine Lee, and Emily Parker.
Lee: The narrative on bitcoin has shifted from a means of payment to a store of value for some. It is not so much used as a currency as a digital gold. Institutions and public companies are buying this thesis and we are seeing bitcoin hit records as a result. What do you make of this institutional and corporate interest in bitcoin, underlined by Tesla’s $1.5 billion bitcoin investment on Monday?
Roubini: As you suggested, bitcoin and crypto is not a means of payment. It is not a currency. It is not a unit of account. Is not a scalable means of payment. It is not a single numeraire. Now, people say it is an asset. But think of it. What are assets? Assets like stocks, bonds and real estate give you income or give you some use, like real estate. And, therefore, they give you capital gain. Gold does not give you income but it has other uses,—industrial activity and jewelry—and therefore, has some value. It used to be used as a means of payment.
In the case of bitcoin, it does not have any income. It doesn’t have any use. It doesn’t have any utility. So the value of it based on what? Based on no intrinsic value and purely a speculative bubble. That is why I argue that bitcoin, like all the other shitcoins, are worth zero. [Coindesk reporters giggle.]
Actually, negative given the hogging of energy and the environmental cost. If there was a carbon tax on crypto, the value of these assets would be negative.
So what is the fundamental value? What is the use? What is the utility that justifies the capital gain? None. It is a speculative bubble that is based on pump-and-dump, spoofing, wash trading and manipulation by Tether, which is a total scam. [More giggling from Coindesk crew.]
So, for institutional investors, saying we are going to invest in crypto doesn’t make any sense. You have a failing company that had a flat stock market like MicroStrategy for a decade, and its head was a coke addict who decided to bet the entire house on bitcoin. [CoinDesk crew really losing it.] That is irresponsible behavior. It is not gonna be any corporate head that is going to put his cash, as you point out, into something that is so volatile. You put your cash into something that is stable.
And for someone like Elon Musk who knows he has a market impact to manipulate to first, take an individual position to bitcoin, pump the price up, and then say that Tesla is invested. And Tesla doesn’t make money yet. It is also irresponsible and it is market manipulation. [Note: Musk was tweeting about BTC, pushing up the price, before Telsa announced it had purchased $1.5 billion worth.]
The SEC should be looking at people that have a market impact that manipulate the price of assets. That is also criminal behavior. It is totally a criminal enterprise. Tether is a criminal enterprise, and a bunch of whales and insiders are manipulating the price of bitcoins and other shitcoins day in and day out. That is a fact.
Lewitinn: Dr. Roubini, always a ray of sunshine, of course. The question about Tether is this: We have known for a while now that it has been backed entirely by dollars. It is something like 70-some-odd percent. That came out a while ago. There have been questions about its backing for some time, for several years. Yet it is still trading on par with the US dollar. Conceivably, they have enough assets at least for a while to keep the peg going with the dollar. How much of a real worry is it for crypto if there is even a small run on tether?
Roubini: First of all, we don’t know if it is backed 70% or not. Their lawyer says 70% but we have no idea. It doesn’t mean any[thing] absolute independent audit of it. [A bit garbled here, but he is saying, outside of a third-party audit, which Tether has never had, there is no way of knowing what’s backing tethers.]
We also know they are really issuing, literally, at an exponential rate, new tethers. In the last year alone, something like 25 billion. And in the last few weeks, a billion per week. So it looks like they are getting desperate, and it is a typical Ponzi scheme, in which you maintain the value of something by issuing more of it and more of it and so on.
Lewitinn: How different is that from what is going on right now from the money printing happening in Washington?
Roubini: The money printing in Washington is happening at a rate that is much less than the issuance of fiat by Tether and other shitcoins. If you look at the chart of it, literally, the case of Tether is exponential. Second, central banks, if you know, their assets are matching their liabilities. For every dollar of currency in excess of reserves that are in the central bank balance sheet there is an asset, foreign reserve, or gold or treasury assets.
So the idea that fiat currencies are not backed by anything is utterly false. If you look at the balance sheet of any central bank, there are assets and there are liabilities. And actually, there is a positive net worth most of the time. But in the case of Tether there is nothing backing it. Again, even 70% is not true. And we know that every fixed exchange rate that is based on not-full-backing and not fully collateralized eventually collapses.
The entire monetary history, every fixed exchange that is not backed has collapsed. It is only a matter of time. And the trigger is gonna be when the indictments of Tether and Bitfinex are going to occur, and it is only a matter of time this year. Because we know that there are investigations occurring.
Parker: Let’s move to central bank digital currencies for a moment. We know that China is moving quite rapidly in this area. Do you think that the US dollar will remain the world reserve currency?
Roubini: I think that the Chinese are going to go ahead. [Sweden’s] Riksbank bank is going to go ahead. The [European Central Bank] is going to go ahead. And until now the US was behind the curve, but they realize that the Chinese had a plan to dominate the global financial system. It’s their e-commerce. It is their own platform of private payment systems like AliPay and WeChat Pay and that is going to be the e-RNB. And it is only a matter of time before we are going to phase out cash all over the world. And if the US wants to maintain the role of the US dollar as a major global reserve currency, they will have to move to an e-dollar.
The problem with that is that people get excited in the crypto world when central banks end up talking about a central bank digital currency. A CBDC, first of all, has nothing to do with blockchain. It is going to be private. It is going to be centralized. It is going to be permissioned. And it is going to be based on a bunch of trusted authority verifying transactions.
It has nothing to do with blockchain. It has nothing to do with crypto. And as a payment system, it is going to dominate, not only crypto, which has absolutely no payment services, but also any private form of payment system that is digital, from credit cards to bank deposits to AliPay to WeChat pay to Venmo to Square to PayPal, and so on. Because it is going to be cheap, it is going to be instantaneous clearing and settlement. It is going to be a system that is going to dominate any form of private money
If and when a central bank currency is going to be introduced, the problem is going to be that any form of private digital payment system is going to be crowded out, starting with crypto, which doesn’t have any payment service in the first place.
Lee: Dr. Roubini, it sounds like you believe that the technology underlying bitcoin is at least sound and that governments and central banks around the world will adopt it, and if that is the case, what happens to privacy? And you also mentioned something about negative rates becoming the norm. Tell us about that?
Roubini: First of all, I said the opposite of the technology. The central bank digital currencies will not be based on blockchain. They are going to be private, not public. They are going to be centralized, not decentralized. They are going to be permissioned, not permissionless. They are going to be a bunch of central banks and private banks that are trusted verifiers of the transaction, rather than being trustless. So the technology is not going to be blockchain. It is not going to be crypto. That is my point.
Secondly, the advantage of having a central bank digital currency is that right now, if there is a very severe economic recession, central banks cannot go very negative with the policy rates. That is why they do quantitative easing. They do credit easing. Because if you go lower than, say, 75 basis points, people are going to switch their excess reserves into cash if there is a nominal zero interest rate. So they are not going to pay the tax.
However, if you phase out cash, then you have no option than to keep your money in the digital form. And then the negative policy rate in a severe recession or depression can go to minus one, minus two, minus three, minus four, minus five, whatever you want it to be. So if and when that happens, and if there is a recession that is severe enough, central bank digital currencies are going to allow you to have much more [of an] easing monetary policy with much more negative policy rates. That is the direction we are going to go.
Lee: Is there anything that can happen that would change your mind about bitcoin?
Roubini: So far, no. As they say, it is not a unit of account. It is not a means of payment. It is not a single numeraire. It is not a stable store of value. And with proof-of-work, you get five transactions per second. And if it was to be adopted as a means of payment, you would have deflation. Because the quantity of it is limited in the long run. If you want to create a digital currency that actually works as a means of payment, its growth has to be the growth of nominal GDP, so that the demand can be satisfied by supply that increases as much as nominal GDP, meaning the inflation target plus the growth of the economy. Otherwise, you are going to get permanent deflation on every price in goods and services, so it’s fundamentally flawed even from that point of view.
Update: In an earlier version of this story, I mentioned Musk had deleted some of his BTC tweets. So far, I haven’t found any hard evidence of that, so I removed my comment.
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