Nouriel “Dr. Doom” Roubini : “99 Percent of Cryptocurrencies are Worth Zero”

We don't need blockchain, we don't need crypto. Their dao was a failure. I would say 99% of cryptocurrencies are worth zero.

Should people just stop using blockchain?

Why would I want to trust somebody in Russia or somebody in China to verify my transactions?

Some. So Even after the 2008 financial global crisis, you still believe in traditional financial banking system?

That's why I spoke about the crypto apocalypse.

But it might be fixed, I think. Hi, Naro, thanks for joining me here. How are you doing today?

Great. I'm being here at Blog Show. I gave a keynote, I spoke on a couple of panels, did some interviews, met lots of interesting people. So great event.

So it is a crypto event, right? You know that. So my question is, why are you here if you're kind of against crypto? You've been talking a lot about the end of the crypto era, why do you visit crypto events then?

Well, you know, I've been speaking to many different crypto events because I'm one of the few academic economists who is very skeptical of not just cryptocurrency but also blockchain. And I've been doing a lot of research analysis that I can speak about intelligently. And people in this space usually like to have some contrarian views rather than having every speaker saying how wonderful this space is. And since I'm quite sophisticated in terms of understanding this space, even the nuances of technology, people like to have me at these events. And I enjoy having a spirited intellectual debate with people. I might disagree, but some of them are smart.

I'm sure you've tired of being asked this question, but why you're against the crypto industry or the crypto assets? What's your stand on it?

Well, you know, I'm not against. I'm open to any type of technology innovation, but I'm an expert of financial crisis and asset bubbles. And I became famous predicting the global financial crisis and the bust of that bubble. So I can see a bubble when there is one. And to me, this entire space has been the mother and the father of all financial bubbles. And now it's gone bust. You know, last year pretty much everybody I knew was asking me every other day, should I buy Bitcoin? And the price of Bitcom doubled, triple, quadruple and went to 20,000. And when that bubble burst, it collapsed, collapsed from 20,000 down to 6,000 today. So if you bought the peak, you lost 70% of your value. And it's typical of all these Financial bubbles, they go up until they collapse. And bitcoin is actually the best of them because the average cryptocurrency has lost in the last nine months more than 90% of their value. So I spoke about the bubble existing and this bubble going bust, and guess what in the last year has gone bust. So I think I've been vindicated and proven right in saying this is a bubble. It's a bubble that's gone bust. And I've been eloquent because people in this space, lots of scammers, lots of manipulators, lots of shady people, lots of self interest people, I have no financial interest. Bitcoin can go to the moon or zero. I'm not going to make a penny either way because I'm neither short or long and I'm just an academic who speaks his mind. And I saw a big bubble. And I think that it's fair as an intellectual to discuss these things and then figure out what's going wrong.

There are a lot of predictions about bitcoin, among other cryptocurrencies going up eventually in 5 years and 10 years. What do you think about that? We will see. Is the bubble over or it will be violating once again?

Well, you know, there have been so far almost 2,000 cryptocurrencies or tokens or coins that have been issued. But an academic study suggests that 81% of all ICOs were a scam to begin with. 11% of them have failed or they're dead. And of the remaining 8% that is traded on exchanges, the top 10 have lost on average in the last year, 95% of their value, more than bitcoin. So the, there was a bubble and everybody was riding the bubble. Everybody was issuing an ico, raising money, but now it's gone bust. And right now it's very hard to do an ico. It was easy money last year when the prices were going up day after day. Now that price has fallen 95%. I think the average investor is becoming sophisticated and says, why do we need all these tokens? Why do we need all these cryptocurrencies? What are they worth for? And they're not worth anything. There are ways for people to raise money and go having a big vacation in Ibiza or somewhere else, or stealing their money and running. Now it's gone bust and people are becoming much more sophisticated. That's why I've spoken about the crypto apocalypse. It's very rare to see an asset class where in nine months, 95% of the asset value is disappearing and it's disappearing. It's not going to come back.

So the crypto apocalypses is now. Yeah, it has already happened.

Yeah, it was a bubble last year, but now the average cryptocurrency has lost, you know, 95% of its value. And when you have of all ICOs, 81% of them being scams and another 11% already failed and you know, this was a bubble that's gonna already bust.

So what do you think will happen to the prices of cryptocurrency? Will they just stabilize in a way? Because a lot of people say that it's immature market and eventually it will be, you know, more mature and we will see more prices coming, more stable. Right now. What do you, what do you think will happen?

I think that they've lost already 95% of the value. They could lose another 95%. Yeah, I mean, I would say 99% of cryptocurrencies are worth zero. I think something like Bitcoin, that was the first one that was created, is also in a bubble and has already lost 70% of its value. It's gone from 20 to 6,000. Maybe it's going to be worth around 1,000 eventually, but not more than that. So just because some people believe in something alternative to fiat currencies, alternative gold and like collectibles, some people are going to hold some bitcoin. So Bitcoin is not going to disappear. But you know, Ethereum is a bubble and it's a bit of a scam. It's worth nothing. Xrp, all the other ones, they're all going bust.

Why do you think Ethereum is a scam? You said it's a scam as well.

Is a scam because the technology they talk about, smart contracts, there is nothing about them that is smart. They're all buggy. They're not real contracts because you have to enforce certain contracts. You cannot have just a code. They've tried things that have failed. Their DAO was a failure. There's a lot of people talk about their Dapps or distributed apps. 75% of those apps are what? Cryptokitties, Ponzi schemes and other pyramid schemes and other casino games like Las Vegas. And 25% of it is these decentralized exchanges that are essentially trading stuff that is worth nothing and has no liquidity. So after a decade, what does Ethereum has to show us? Cryptokitties and Ponzi schemes. That's what they're doing. You know, they're not doing anything that's of Any use to anybody. So it's a bubble and it's gone bust. Already the market value of Ethereum has lost almost 90% of its value.

Don't you think we just need time to see that the technology rise and the smart contract working?

I don't believe first of all, in smart contracts, by definition any contract has to be enforced by lawyers. There is nothing that enforces by itself. You cannot find out if in a contract. Every state of the world has to be interpreted one way or another. So the idea that you put everything in a code in a contract is silly to begin with. And you know, typical NASA program has less than 1% of bugs in its code. And a typical Smart contract has 10% of its code is buggy. I mean this is the reality where we are right now. And by the way, the broader question about cryptocurrency is that they're not scalable and there's no system that makes them scalable. They're not decentralized because the entire system is coming centralized and they're not secure because there are so many ways to hack them. So it doesn't have any functions should have. It's not scalable, it's not secure, it's not decentralized. So what is it worth for at least financial system that we know are centralized? Yes, but they're secure and they're scalable. You know, with Bitcoin you can do five transactions per second, with Visa you can do 25,000 transactions per second. So and this problem of scalability has not been resolved. They've been saying for a decade, we're going to resolve it with proof of stake rather than proof of work has not worked yet. And even if there was something scalable, it's going to be centralized and therefore it's not secure. So there's a fundamental flaw in the technology.

But it might be fixed.

They've been talking about fixing it. But Vitalik Buterin, who was the creator of Ethereum said you cannot have a blockchain system that has three characteristics at the same time, being scalable, decentralized and secure. Traditional financial system are centralized and there's nothing wrong with institution centralized in my view. They criticize it say one decentralized, but I prefer a centralized system with trust authority. But at least they're secure and they're scalable. In the crypto space there is nothing scalable, there is nothing secure and there's nothing decentralized. There's a lot of talk about the centralization miners are centralized as an oligopoly coders are centralized, exchanges are centralized. As 99% of all transaction occurs on a centralized exchange. And there's a massive concentration of wealth is worse than North Korea in terms of income and wealth inequality. So there's a lot of talk about decentralization. The reality is just the opposite. It's a totally centralized system. So it goes against the logic of having a distributed public, peer to peer system. It's just the opposite. It's not distributed, is not public and is not decentralized. And they're not going to be able to change it. There are fundamental reasons why it cannot be secure, decentralized and scalable.

So Even after the 2008 financial global crisis, you still believe in traditional financial banking system.

There are many problems with the traditional financial systems. And I've been one of the biggest critic of the financial system. And I believe that there are ways to democratize finance and make it more efficient. But is not based on blockchain. There is a revolution in financial services. It's called Fintech. As zero, zero to do with cryptocurrency, zero to do with blockchain is based on AI, machine learning, Internet of things and big data is revolutionizing payment system, insurance, credit allocation, capital market functions and asset management. Take for example payment system. There is already payment. Plenty of digital payment system that do billions of transactions a day are used by billions of people around the world that are not based on blockchain. In China you have Alipay and wechat pay. In India you have all these UPI system. In Africa you have M Pesa. In the United States you have Mambo, PayPal Square and so on and so on. These are things that are used for transactions. With Bitcoin you can do five transactions per second. With Visa can do 25,000. With this other model you can do millions of transactions. And there are billions of transactions done by billions of people today. Their digital payment system are based on traditional financial institution and fintech. They have nothing to do with blockchain. We don't need blockchain, we don't need crypto to democratize finance. There is already a revolution. There's going to be much more competition. There'll be much more access. If you're a poor farmer in Kenya today, you're using M Pesa on your little smartphone. You can make transactions. You can borrow and land. You can buy and sell your goods and services. You have a whole slew of financial services without a brick and mortar bank. And all these things are available to billions of poor people in Africa. What they have to do with blockchain or crypto, Nothing, zero. So there is a revolution has nothing to do with blockchain.

I'm sure there are a lot of people that would disagree with you. You know that, right? That you can put data on blockchain, you can help data storage in terms of farming as well.

People talk about all this stuff. The reality is everything that they talk about is not something they say we can do this, we can do that, we can do that. They've been saying for 10 years there's not a single application of it. Everybody's trying blockchain stuff and then they realize doesn't do the job for me and then they give up. There is other stuff that is used by real company, real people with real revenues that resolves problems of the real world. Most of blockchain is a solution to a problem that does not exist. So there is a gap between what in principle people say this technology will do and the practice is just the opposite. There is not a single killer app. After a decade. What is in the killer app? Bitcoin, cryptokitties, pyramid schemes, Come on, have.

You checked them all?

Maybe there are, I follow the system. And even people in this space, they say you're right so far we don't have a single killer app. By the beginning of the Internet there was email, there was a killer app, there were web browser, there were killer app, there were websites, billions of them. Those were killer apps. Everybody started using them. After a decade this entire industry can only tell us there are cryptokitties.

In terms of enforcing something about cryptocurrencies, there are a lot of regulations. Do you think that the governments should ban crypto assets entirely or somehow regulate them?

Well, the reality is that ICOs are securities but they are non compliant securities. So most of them are actually skirting every security law. Security laws tell you you have to register your security, you have to give information about the issuers, you have to protect smaller investors. There are KYC know your customer regulation, there are AML anti money laundering. There are restrictions to avoid tax evasion and so on and so on. And you look at 99% of all securities and regulators have said with exception, maybe of bitcoin, that is technically speaking more of a commodity rather than security. But Ethereum is a security, XRP is a security and every other SEO is a security. But it's illegal security because they've been issued in a way that is skirting and avoiding traditional security regulations. So they're illegal and they're going to crack down on them, they're going to start to crack down.

Ethereum was not seen as a security. It is a commodity token right now.

No, that's not true. There have been people who are experts in this field who argue that Ethereum, the way it was designed is a.

Security, but it is a decision by the sec.

The SEC is the regulator. If the SEC is going to decide, I'm not taking a stance, but people who are experts who have been working in security regulation have said that Ethereum is a security. So we'll see what the legal ramification of that is. But most people believe it is a security, but it's a non compliant security.

So crypto assets in your terms should be regulated as a security. They should be, but they should not be banned.

I'm not against banning. You know, if you want to issue a security, then you don't do an ico, you do an ipo. You know, there are good reasons why we have security regulations to protect investors, to make sure there are no scams, that there are money anti money laundering, that you know your customer, that you avoid terrorism financing, that you avoid tax evasion. All these things have some compliance costs so far the entire industry has ignored. And no wonder that 81% of all ICOs are formally a scam. There's a study on that, that 11% of them have failed and they owned trade on exchanges, 95% of them has lost most of their value.

If blockchain is useless, should people just stop using blockchain?

People are not using blockchain. You know, every CEO of every company goes to a board meeting and the shareholders say, we've heard about blockchain and why don't we try blockchain? And CEO says okay, I'll invest half a million dollar. If you're JP Morgan or Citi or any other company, let's do an experiment. They do an experiment, just a little something for six months and they say, hey, it's useless, there's no need. Tell me a single company that has used blockchain in any systematic way. And by the way, most companies, why would they want to use blockchain? Why would you want to put your entire P and L, your entire balance sheet, every transaction you do on a public ledger that is distributed. First of all, you're opening up your entire financials, including every information about anything you do to the public. There are good reasons why corporations want to keep their information private. Two, you have to trust as authentication some weirdo miner in China or Russia or Belarus to then what to then approve every transaction that IBM or Microsoft or JP Morgan or Goldman Sachs does. Why would you want to trust these guys? There is no reason why to trust them. And you're Gonna use what, 100,000 computers to just do 100,000 replicas of all your balance sheet and all of your ledgers when you have a centralized one. So the only applications that are gonna work in blockchains are not gonna be permissionless. They're gonna be permissioned, they're not gonna be public, they're gonna be private and they're not going to be distributed, but they're going to be concentrated and they're not going to be trustless, but they're going to be on a trusted, essentially authority that can approve those things. But if you do it private, permissioned and based on a trustee, what's blockchain? In that case, it's just the glorified Excel spreadsheet. It's not blockchain. And 99% of enterprise DLT is essentially a glorified Excel spreadsheet. Has nothing to do with, with blockchain. There is nothing public about it. There is nothing peer to peer. There is nothing distributed because nobody in their mind, in any corporation in the world is going to put on a public blockchain everything to do with that corporation. There is no economic logic. It's actually crazy to do so that's why nobody at the enterprise level is using blockchain in a public way. It's just never going to happen.

The entire idea of the industry was to create the transparent system and to create a new world of the financial system that you can trust, of the financial system that think about a user, a client. So you think it failed?

It completely failed. After 10 years, there is no killer up. The crypto assets are going bust. They've lost the 99% of value. All these experiments have led not a single corporation or single financial institution to use this technology. And there is no reason why they want to use this technology. And why would you want, they say it's distributed and is private and whatever not. Why would I want to trust somebody in Russia or somebody in China to verify my transactions? It's not safe. Why would I want to do it? There are central banks, there are corporations, there are institutions that have been existing forever that are based on trust on their reputation. I know what I'm dealing with. I'd rather have those institutions verify my transaction rather than somebody in China who can manipulate everything I'm doing. There is no reason why I, I should do it. They say they are decentralized. There is nothing decentralized about them. Centralization of miners, centralization of code, centralization of exchanges, centralization of financial interests is a completely centralized system. The blockchain and crypto. There's a rhetoric about decentralization. There is nothing decentralized. If I have to centralize a system, I would rather use traditional trusted authority rather than some minority somewhere on the other side of the world. I don't know what their interest is. There is no reason why I should trust somebody who I don't even know what their name is, who they are, what they do.

So you would rather believe a bank?

We have security laws. If a bank manipulates. There have been hundreds of billions of dollars of fines on the banks and their misbehavior. People ended up in jail. There are lots of problems with the traditional financial system. Blockchain and cryptocurrency do not resolve this problem. Fintech resolves it. But fintech has nothing to do with blockchain or cryptocurrencies. You're saying something is bad about our system? Yeah, I'm the first one was criticized the financial system. I've been writing about financial crisis, I've been criticizing banking system. I don't believe that crypto or blockchain resolves any. Any of the problem of our existing financial system doesn't resolve anything. It's just something for a bunch of self serving people speaking about decentralization, speaking about freedom, speaking about democratization of finance. And there is no democratization of finance. There is no more access to financial services, to crypto or blockchain. There are other alternatives that exist out there like M. Pesa that giving power and giving democratization of finance to billions of people in Africa. Those things have nothing to do with blockchain. I believe in those things. I don't believe in blockchain.

I see your point of view, but just be clear. The banking system has been around for centuries, right? So maybe you should just give crypto industry and blockchain industry a try.

No, no, I'm not giving it a try. I'm going to give a try to financial innovation that changes the financial system. And as I said, the fintech is based on AI. Big data is revolutionizing the financial system. That's why there are digital payment systems have nothing to do with with blockchain or crypto that are accessible to billions of people at zero cost for billions of transactions every day. Those things are already existing. They're democratizing finance and they are out there is alipay is M. Pesa is Venmo is PayPal. All those things are very low transaction costs. They're revolutionizing finance, they're leading to competition, they're forcing the banking system to innovate or not survive, and they're changing the world. But they have nothing to do with blockchain. Why should I give the benefit of the doubt to something that is not provided any application is used by anybody? I don't believe in it, and the proof is in the pudding. There is no application used by anybody.

My last question is, have you ever tried cryptocurrency trading?

No. No, I haven't tried it. Also because, as I said, I'm not talking my book. Some people say that you are critical of crypto because you're shorting Bitcoin or cryptocurrencies. I have zero position. I have no long position. I have no short position. I may be right or maybe wrong, but crypto could go to the moon or go to zero. I'm not going to make a penny out of it. I'm an intellectual, I'm an academic. I have no conflicts of interest. Pretty much everybody else who speaks in industry, everybody else who speaks at this conference has somebody who has some financial interest. They're padding their coin, their blockchain thing, their events, their business, even their media. Okay? I have no interest. Okay. My only thing is my own academic reputation. If I'm proven wrong, my reputation is going to be negatively affected. But I'm not going to make a penny, and therefore I'm not going to take a position one way or another, because I have to take a position. I have a financial interest to talk down or up a particular cryptocurrency, and that's not my interest. I'm an intellectual and I'm not going to make money one way or another out of it.

I see. Thank you so much for your time. Thank you for being here with us. Cointelegraph, like subscribe and hod.

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