'Dr. Doom' economist Nouriel Roubini breaks down why bitcoin is neither a currency nor an asset - and is instead a giant bubble
- Bitcoin is not a currency, nor is it an asset, economist Nouriel Roubini told Goldman Sachs on Friday.
- Roubini reiterated his view that cryptocurrencies are in a bubble because their current prices far exceed their fundamental value.
- "Even the Flinstones had a more sophisticated system by using shells as a single numeraire to compare the price of different goods," Roubini said.
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Roubini explained that a currency must have four qualities, including: a unit of account, a means of payment, a stable store of value, and act as a single numeraire.
"Bitcoin and most other cryptocurrencies have none of these features," Roubini said. Nothing is priced in bitcoin, it's not a scalable means of payment, it's not a stable store of value given its high volatility, and the prices of different items are not denominated in cryptocurrencies "because there are thousands of tokens and thus limited price transparency," Roubini said.
The economist highlighted that bitcoin can only complete seven transactions per second, compared to the Visa network which can conduct 65,000 transactions per second.
"Even the Flinstones had a more sophisticated system by using shells as a single numeraire to compare the price of different goods," Roubini said.
While cryptocurrencies are not currencies, according to Roubini, they are also not assets.
"Assets have some cash flow or utility than can be used to determine their fundamental value," Roubini said, noting that bitcoin and other cryptocurrencies don't have cashflow or utility.
Because of that, cryptocurrencies are in a bubble, according to Roubini.
"A bubble occurs when the price of something is way above its fundamental value. But we can't even determine the fundamental value of these cryptocurrencies, and yet their prices have run up dramatically," Roubini explained.
Roubini remains doubtful that institutions will adopt cryptocurrencies en masse in their asset allocation models, given that the asset can drop by 15% overnight, according to the interview. And corporations adding bitcoin to their balance sheet seems far fetched due to that high volatility. Bitcoin has fallen 50% over the past two weeks alone.
"Any treasurer who invests in something that falls 15% in value overnight will be fired. Sure, Elon Musk can do it because he's the boss, although he's since backtracked somewhat on bitcoin due to environmental concerns. But few other people are in that position," Roubini said.
MicroStrategy CEO Michael Saylor disagrees, as he continues to add bitcoin to the company's balance sheet and has even taken on debt to do so.
And as for bitcoin serving as an inflation hedge, Roubini remains skeptical, saying that just because something is scarce doesn't mean it has a fundamental value.
"It's not difficult to create something with limited supply, and there's no reason artificial scarcity is valuable in and of itself," Roubini said.Read the original article on Business Insider