The price of bitcoin is ‘driven by manipulation’: Nouriel Roubini

Nouriel Roubini, professor of economics at New York University’s Stern School of Business and CEO of Roubini Macro Associates, joined Yahoo Finance to discuss his thoughts on bitcoin.

Video transcription

JULIA LA ROCHE: Welcome back to Yahoo Finance Live. We are now joined by Nouriel Roubini, NYU Professor of Economics at NYU’s Stern. Nouriel, always nice to have you with.

We want to share some news that just comes across. We get some headlines that President Trump has defied Congress and vetoed the two-party defense policy bill. In some comments, Trump called the defense policy proposal an offer, a gift to China and Russia.

And of course, I know you’re the one watching geopolitical events. And we’re evolving into a new administration in 2021. Your reaction to this news is just crossing.

NOURIEL ROUBINI: Well, you know, I mean, the president’s getting stuck on everything. He is literally trying to carry out a military coup following the advice of Mike Flynn and others to undermine the outcome of the election.

He does not want to adopt the stimulus bill. And if he does not, we could end up in a government shutdown. And now he’s blaming the defense proposal for things that do not make sense, you know. He has even denied that this major hack attack came from Russia. He claims it came from China without any base. And if there is anything that can actually help us push back against our strategic rivals, whether Russia or China or North Korea or Iran, it will be this defense proposal.

So literally the guy gets completely unhindered across the board. It’s just politics. Maybe he’s trying to prepare to run again in 2024. Maybe he’s losing his balls. I do not know what’s going on. But pretty much everything he does makes no sense.

ADAM SHAPIRO: Nouriel–

JULIA LA ROCHE: Nouriel – move on, Adam. You move on.

ADAM SHAPIRO: Go Julia. It’s all you, Julia.

JULIA LA ROCHE: Well, I would like to shift the conversation and thank you so much for sharing your thoughts on it to cryptocurrency. Of course Bitcoin. I think the last time we wore you, you got a lot of attention.

I’m just looking at the price of Bitcoin now. That’s over $ 23,500. And you posted a tweet that Bitcoin has no place in the portfolio of an institutional investor or retail investor. Still, we continue to see big name institutional investors kind of flood the space. Paul Tudor Jones, for example. Even Anthony Scaramucci. And then we also see retail investors. Why does it not deserve a place in a portfolio?

NOURIEL ROUBINI: First of all, it is not a currency to call it a currency. It is not a unit of account. It is not a means of payment. There is not a single one [? numerator. ?] It is not a stable store of value.

Second, it is not even an asset. Either an asset has both income, use and capital gain, as bonds, as shares, as real estate. Or as in the case of precious metals, they do not give you an income. But gold gives you industrial use, it gives you [INAUDIBLE] as jewelry and as a capital gain. While in the case of Bitcoin there is no income, there is no use, there are no utilities.

The only thing is a speculative self-fulfilling form of increase. And that increase is totally driven by manipulation. There has been an academic study suggesting that these pseudo stable coin Tether are created by fiat. This year alone, the increase in the supply of Tether has been another $ 16 billion out of the first 4. So it’s 20. And every time the price of Bitcoin falls, literally overnight, they issue more of this Tether, which is literally used to manipulate the price of Bitcoin.

So the price of Bitcoin is completely manipulated by a bunch of people by a bunch of whales. It has no fundamental value. And as in 2017, when it went from 1,000 to double, and then in ’18 it crashed down from 20,000 down to 3,000, I think we’re close to the point where this hyperbolic bubble is going to stall. And it’s going to break because law enforcement is investigating Tether and the company behind it.

And in my opinion, as in the case of BitMex, which was the biggest scam and the criminally derivative cryptocurrency house has been charged, you can get an indictment against those behind Tether. When that happens in the next few months, there will be a crash of Bitcoin and all the other cryptocurrencies. They are not even currencies. They are shit coins.

ADAM SHAPIRO: Nuriel, I will break this down into several parts. Because I think many investors with Bitcoin over $ 23,500 today need to pay attention. Why would there be, I call it an infection, if the feds crack down on the second crypto for Bitcoin? And how do you see central banks around the world looking at creating digital currencies? Are they different from what we see with Bitcoins and the other cryptocurrency is already out there?

NOURIEL ROUBINI: There are several academic studies, including one from the University of Texas, that showed that every time Bitcoin prices weakened, there was an issue of this Tether. There is literally a stable coin created out of Fiat. There has been no update that these cryptocurrencies are supported by assets. And it’s just printed by fiat used to buy Bitcoin. So it’s actually total price manipulation.

There is ample evidence that there are other schemes for manipulating cryptocurrency. There are pump-and-dump schemes, hundreds of channels on Telegram or on WhatsApp that are frontrunning, i.e. laundry trade. Pretty much everything done for penny stocks is done for crypto and bitcoin to the power of 10. It is a totally manipulated market. It is not driven by the basics. It is run by insiders, by criminals, by whales, by scammers. That is the reality and there is evidence of it. And that is why there are criminal investigations that will reach their climax in the next few months.

Second, central banks will adopt digital currencies. But first and foremost, these digital currencies will have nothing to do with crypto or blockchain. Today, every private commercial bank has a bank account with the Fed. It is we as individuals [? non-corporational ?] are non-economic. We do not have access to the Fed’s balance sheet.

Suppose tomorrow we have access to the Fed’s balance sheet. That’s what a central bank’s digital currency means. It’s not digital money. Digital money has been around for decades. We have bank accounts, we have bank transfers, we have AliPay, we have WeChat Pay, we have Venmo. We have all sorts of other digital payment systems.

So what’s new is not that it’s going digital. There are thousands of digital payment systems operating worldwide. It is that we do not have a situation where individuals like you and me have access to the Fed’s balance sheet. Once we have done that, we do not need a bank deposit to make cheap, fast, instant transactions, which our payment system then clears and settles immediately. So once we have a central bank’s digital currency, not just crypto – this junk, these shit coins that have no payment use. But even other digital payment systems like bank deposits or Venmo and PayPal will be dominated by the central bank’s digital currency. And this scheme technically has nothing to do with crypto, has nothing to do with blockchain. It is becoming centralized. It gets permission. It will be a system that becomes private, not on a public decentralized ledger.

So it’s not true to call it crypto. It is a central bank digital currency. It will revolutionize payment systems and will destroy any pseudo-cryptocurrency that is not a cryptocurrency and is not a currency.

People do not know what they are talking about when they talk about the digital currency of the central bank. They get excited. They say that even central banks need crypto. Just the opposite. They do not know what they are talking about.

JULIA LA ROCHE: Nouriel Roubini, Professor of Economics at NYU’s Stern and CEO of Roubini Macro Associates. Always a pleasure to have you with. Wish you a good holiday season. And thanks again.

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