Report: CFTC Investigating BitMEX, Crypto Trading Platform Allowing 100x Leveraged Trades

The US Commodity Futures and Trade Commission (CFTC) is engaged in a “months-long” investigation of BitMEX, a cryptocurrency exchange that made its mark by enabling retail investors to conduct 100x leveraged trades of bitcoins, Bloomberg reports.

According to “people familiar with the matter,” the CFTC is trying to determine whether BitMEX allowed Americans to trade on its platform without first registering to do so.

The CFTC oversees the trading of commodities such as gold and any derivatives, including gold futures.

Bloomberg notes that no conclusion has yet been reached and that, often, investigations do not lead to formal allegations.

A spokesperson for BitMEX said the company, “as a matter of…policy, does not comment on any media reports about inquiries or investigations by government agencies or regulators and we have no comment on this report.”

BitMEX has been in the media hot seat for two weeks after CEO Arthur Hayes agreed to debate Professor Nouriel Roubini in Taipei at the Asia Blockchain Summit.

According to LinkedIn, before starting BitMEX in 2014, Hayes traded for Citibank and Deutsche bank for just over 5 years.

Roubini is a professor at NYU, a former Senior Economist for International Affairs in the White House’s Council of Economic Advisers and has worked at the International Monetary Fund, the US Federal Reserve, and the World Bank.

He is known for having predicted the 2008 financial crisis.

During the debate, Roubini called Hayes, “…a thug that is a public danger to thousands of small clueless investors who have lost their shirt because of his scam,” adding that BitMEX, “should be prosecuted for fraud and banned fully.”

In the days following the debate, both parties declared victory as observers decamped.

On Tuesday, Roubini launched a second formal attack against BitMEX in the form of an article, “The Great Crypto Heist,” in which he accuses BitMEX of enticing retail investors with dangerous amounts of leverage, of “front running…clients,” of using only IP addresses to conduct KYC/AML, and of processing criminal monies.

According to Bloomberg, Hayes has admitted previously that US traders might be masking their location by using (VPNs) virtual private networks to redirect their communications with the platform.

Roubini also claims Hayes tried to suppress public access to the video of the debate:

In “The Great Crypto Heist,” Roubini claims Hayes made sure to acquire the rights to video footage before the debate:

“(U)nbeknownst to me, he had secured exclusive rights to the video of the event from the conference organizers, and refused for a week to release it in full. Instead, he published cherry-picked “highlights” to create the impression that he performed well. I suppose this is par for the course among crypto scammers, but it is ironic that someone who claims to represent the “resistance” against censorship has become the father of all censors now that his con has been exposed. Finally, shamed in public by his own supporters, he relented and released the video.”

Roubini has also been chipping away at BitMEX’s credibility in other tweets this week:

Hayes, for his part, has countered that Roubini doesn’t understand Bitcoin and the desirable service BitMEX provides, and is simply pumping his career and feeding an unscrupulous media by bashing the sector:

“Due to a lack of analytical rigor behind his criticisms of Bitcoin, Roubini attempted to focus the debate on the business practices of BitMEX…BitMEX provides safe, fast, and liquid ways for those who see the potential of crypto to trade and hedge cryptocurrency vs. fiat risk…He increases his publicity by being hyper-critical of Bitcoin regardless of the actual facts. And that is why the media trots him out whenever they need someone to bash Bitcoin and the cryptocurrency industry.”

As fallout from the debate settled, Hayes emphasized the convenience of BitMEX and denied the veracity of allegations of criminal conduct at Bloomberg:

“BitMEX provides safe, fast, professional and liquid ways for those who see the potential of crypto and to trade and hedge cryptocurrency risk. We continue to monitor all legal and regulatory developments around the world and will comply with all applicable laws and regulations; we reject any allegations of criminality, manipulation or unfair treatment of our customers, who are at the center of everything we do.”

In this video (at about the 8-minute mark), however, Hayes also describes how BitMEX turned itself profitable by offering leverage to “degenerate gamblers, AKA retail investors,” something no other exchange was doing at the time:

“There are people who are offering similar types of products but who are focussing on degenerate gamblers, AKA retail traders in Bitcoin, so why don’t we do the same…so we said, ‘OK, we’re going to create the world’s highest-leveraged Bitcoin-US dollar product and we want to enable anyone who has Bitcoin to trade financial derivatives.”

Several traders recently claimed that leverage -and not increasing demand- is behind recent price rises and volatility in crypto markets.

Following Controversial Debate, Crypto Skeptic Nouriel Roubini Levels Serious Allegations Against BitMEX Exchange

On the heels of a controversial debate held recently in Taipei, crypto skeptic and NYU Professor Nouriel Roubini has written an article, “The Great Crypto Heist,” to come back again against, “Some of the biggest crypto players…openly involved in systematic illegality.”

Roubini singles out Hong Kong-headquartered and Seychelles-registered crypto trading platform BitMEX, whose founder, Arthur Hayes, was Roubini’s opponent in Taipei (Hayes and co-founders Ben Delo, and Samuel Reed are all crypto billionaires).

Roubini accuses Hayes and BitMEX of enticing retail investor with dangerous amounts of leverage, of “front running…clients,” of using only IP addresses to conduct KYC/AML, and of processing criminal monies.

With regards to the 100X leverage available on BitMEX, Roubini writes:

“Consider BitMEX, an unregulated trillion-dollar exchange of crypto derivatives that is domiciled in the Seychelles but active globally. Its CEO, Arthur Hayes, boasted openly that the BitMEX business model involves peddling to “degenerate gamblers” (meaning clueless retail investors) crypto derivatives with 100-to-one leverage.”

In this video (at about the 8-minute mark), Hayes describes how BitMEX turned itself profitable by offering leverage to retail investors, something no other exchange was doing at the time:

“There are people who are offering similar types of products but who are focussing on degenerate gamblers, AKA retail traders in Bitcoin, so why don’t we do the same…so we said, ‘OK, we’re going to create the world’s highest-leveraged Bitcoin-US dollar product and we want to enable anyone who has Bitcoin to trade financial derivatives.”

By giving retail access to dangerous amounts of leverage in notoriously volatile markets, BitMEX really levered their money into its own pockets, Roubini says:

“To be clear, with 100-to-one leverage, even a 1% change in the price of the underlying assets could trigger a margin call and wipe out all of one’s investment. Worse, BitMEX applies high fees whenever one buys or sells its toxic instruments, and then it takes another bite of the apple by siphoning customers’ savings into a ‘liquidation fund’ that is likely to be many times larger than what is necessary to avoid counter-party risk. It is little wonder that, according to one independent researcher’s estimates, liquidations at times account for up to half of BitMEX’s revenue.”

Roubini also claims in the article that BitMEX insiders told him the exchange is processing criminal funds:

“BitMEX insiders revealed to me that this exchange is also used daily for money laundering on a massive scale by terrorists and other criminals from Russia, Iran, and elsewhere; the exchange does nothing to stop this, as it profits from these transactions.”

Roubini is a former Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration, and he has worked at the International Monetary Fund, the US Federal Reserve, and the World Bank.

Following his debate with Hayes, there was much discussion of who had won, and both parties declared themselves victorious.

Roubini says Hayes attempted to suppress public access to the whole video of the debate and, until forced by public pressure to do otherwise, released only the parts of the video that made him look well:

“(U)nbeknownst to me, he had secured exclusive rights to the video of the event from the conference organizers, and refused for a week to release it in full. Instead, he published cherry-picked “highlights” to create the impression that he performed well. I suppose this is par for the course among crypto scammers, but it is ironic that someone who claims to represent the “resistance” against censorship has become the father of all censors now that his con has been exposed. Finally, shamed in public by his own supporters, he relented and released the video.”

As fallout from the debate settled, Hayes emphasized the convenience of BitMEX and denied the veracity of allegations of criminal conduct at Bloomberg:

“BitMEX provides safe, fast, professional and liquid ways for those who see the potential of crypto and to trade and hedge cryptocurrency risk. We continue to monitor all legal and regulatory developments around the world and will comply with all applicable laws and regulations; we reject any allegations of criminality, manipulation or unfair treatment of our customers, who are at the center of everything we do.”

But Roubini is as savage as ever in his latest call out of the entire crypto sector:

“There is a good reason why every civilized country in the world tightly regulates its financial system. The 2008 global financial crisis, after all, was largely the result of rolling back financial regulation. Crooks, criminals, and grifters are a fact of life, and no financial system can serve its proper purpose unless investors are protected from them.”

“But the current regulatory regime does not capture all financial activity… Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.”

Roubini also tweeted this July 18:

 

Nouriel Roubini: Crypto Fanatics the Most “Arrogant and Ignorant” He’s Seen

NYU Professor of Economics Nouriel Roubini, crypto’s favourite foil, has once again called out the cryptocurrency phenomenon and the “fanatics” behind it in an in-depth interview in the CFA (Chartered Financial Advisor) Institute’s Enterprising Advisor publication.

Roubini, who has been dubbed ‘Dr. Doom’ for his oft-sober analyses over the years, is known for having identified the housing bubble of 2008.

In late 2017, he began to vociferously criticize the phenomenon of cryptocurrencies after noticing what he describes as a “parabolic bubble” forming in the price of bitcoins.

As the price of Bitcoins sailed from $2000 USD to $20 000 in 2017, Roubini says this event was accompanied by a concurrent crescendo in the number of “retail suckers” asking him if they should invest, something Roubini considers a hallmark of a bubble:

“…(L)iterally anybody I knew, even random people in the street, would stop me and the first thing they would say, ‘Are you going to be part of the crypto movement? Should I buy Bitcoin?’ This was a typical late bubble behavior when some unsophisticated investors who are total suckers hear about the bubble, they don’t even know what it is.

Neophytes who entered on the excitement in late 2017 were then ripped off by indifferent “insiders,” says Roubini:

“..(T)hey jump on the bandwagon having no clue, and the insiders took complete advantage of these suckers at prices of $20,000 per bitcoin and similar junk. Millions of people lost their shirts buying at the peak only to lose 80% to 90% of their investment in the next 12 months.”

Crypto advocates have repeatedly tried to sell crypto and related “blockchain” projects as “Internet 3.0” or “the Internet of Money.”

Roubini sees no such parallels:

“The internet was in a bubble in the late 1990s, but it was a real thing but valuations of many internet-related stocks were sky-high. Prices crashed and dot-coms went bust, but the internet kept on growing. Billions of people used it, and it has changed the world. Cryptocurrency as a technology has absolutely no basis for success, and the mother of all bubbles is now bust.”

When overwhelming numbers of investors and marketers were sounding the virtues of crypto, almost single-handedly, Roubini took on that “army” of crypto advocates on social media, people he calls “totally delusional”:

“…(T)o me, the whole crypto space is one of assets that are not really money. They’re not really a currency. They’re not a scalable means of payment. They’re not as stable in terms of store of value….That bubble started to burst because there was no real fundamental value on these assets. Then even bitcoin, since the peak, has lost almost 85% of its value. And that’s the best one because thousands of these s**tcoins were created as scams and have lost almost all of their value. The top 10 cryptocurrencies, excluding bitcoin, the average loss of value since the peak has been between 92% and 93%.”

As the bubble formed and after it popped, Roubini attended and spoke disparagingly of cryptocurrencies at numerous dedicated crypto conferences, where he says he met a gamut of unreliable crypto advocates, everything from “ignorant zealots and fanatics” to “criminals…and carnival barkers…insiders talking their books 24/7.”

According to Roubini:

“…I engage on Twitter and I also have attended many of these crypto or blockchain conferences. I met some of these individuals, and I must say I’ve never seen in my life people who on one side are so arrogant in their views, who are total zealots and fanatics about this new asset class, while at the same time completely and totally ignorant of basic economics, finance, money, banking, central banking, monetary policy.”

“They want to reinvent everything about money, but most of them are absolutely totally clueless. The ratio between arrogant and ignorant is astounding — I have never seen such a gap in my life.”

Although Roubini is fond of calling the crypto surge of 2017 “the mother and father of all bubbles,” he admits that, while many lost their savings, the scale of what is hopefully the last crypto bubble was relatively merciful compared to other crises:

“The saving grace of cryptocurrencies is that, unlike other bubbles that exploded and led to some sort of a systemic crisis, this asset class was relatively small. Unfortunately, lots of suckers lost their shirts, but it doesn’t have any systemic implications.”

Dr. Nouriel Roubini Extends Crypto Bashing on Twitter, Blocks Crypto Advocates Who Challenge Him

Dr. Nouriel Roubini, also known as “Dr. Doom,” has extended his crypto / blockchain bashing on Twitter during the past few days. Following a widely viewed Senate Banking Committee hearing where Dr. Roubini submitted a 37 page document that eviscerated the concept of cryptocurrency calling it the “Mother of All Scams,” he has continued his diatribe with pointed criticism on both the technology and individuals active in the blockchains space.

To quote Dr. Roubini:

“The symbol of all crypto greed is that guru, investigated for pedophilia, who sets up shop in a luxury mansion in Puerto Rico just to evade taxes & who pretends to want to save Puerto Rico with a shitcoin after the hurricane. Bloodsucker leeching on the blood of 4K dead folks!”

“So BTC based on PoW is dead while the new chimera of crypto dreamers is PoS. promised PoS in 2013. Still nowhere to be seen. And anyone with any clue in crypto knows that PoS will be an even more centralized mining oligopoly – and thus not secure – than PoW”

“The Crypto middlemen are a dangerous & shady oligopoly in shady jurisdiction like China (where 75% of BTC is mined) or Russia. So Crypto nuts want to replace reputable institutions like the Fed with oligopolies in authoritarian countries. What a nuttery. Decentralization is B/S!”

“99% of thousands of shitcoins are down 90% to 99% from peak. A total Crypto-Apocalypse and Meltdown”

“Markets have spoken this year: since the peak BTC is down 70%, ETH, XRP & other major crypto-currencies are down 80-85%: while thousands of shitcoins are down 95-99%. The market has spoken. & stop bragging about high returns in previous years. Crypto land is in meltdown NOW”

“So instead of trusting governments I need to trust an oligopoly of Chinese miners who are shady and plan to shaft me? Get real once and for all: there is NO decentralization in crypto. It is a myth. It is a system controlled by a shady oligopoly of miners in shadier countries”

“Agreed. Tether is the Mother of all crypto scams and propping up Bitcoin and all the other shitcoins by up to 80%. But regulators who started to investigate Tether/Bitfinex months ago are still asleep at the wheel”

There is quite a bit more crypto bashing from the prominent professor and he appears to be determined to single handedly topple blockchain. But it is also interesting to note that Roubini is blocking some who may challenge his point of view.

An equally qualified individual, Caitlin Long – who is a crypto advocate and Wall Street veteran with 22 years of corporate finance experience (1994-2016 Morgan Stanley, Credit Suisse, Salomon Brothers), appears to have offended Dr. Roubini to the degree he has blocked her access to his Twitter account.

 

Long is not alone in being shunned by Dr. Roubini. There are others and it appears the banning has become a badge of honor of sorts from the crypto-sphere.

Perhaps the one good thing that has come from Roubini’s one sided litigation is he has agreed to debate Vitalik Buterin – the creator of Ethereum.  The question now – is when?

SEC Expands Scrutiny of Companies That Sold ICOs to Unaccredited Investors

The American Securities and Exchange Commission (SEC) has been following up on “scores” of subpoenas it sent in January to companies issuing ICOs (initial coin offerings) and is now focussing on those and “many more” that sold ICOs to unaccredited investors, Yahoo Finance reports.

Based on information gleaned from “15 industry sources,” Yahoo and Decrypt journalist Daniel Roberts reports:

“The (SEC) is exerting pressure on many of those companies to settle their cases. In response, dozens of companies have quietly agreed to refund investor money and pay a fine. But many startups that have been subpoenaed say they are left in the dark struggling to satisfy the SEC’s demands, and are uncertain of how others are handling it.”

The ICO boom of 2016-17 came about after the invention of Ethereum, a “blockchain ecosystem” that sought to become “a world computer” hosting indefinite numbers of “utility tokens” and smart contracts on a purportedly public system controlled by no one.

A portal on the Ethereum network allows anyone to create a digital token that, if accepted, can be traded speculatively on crypto exchanges.

Tokens have often been created based on an idea by individuals or companies with no industry track record or product.

Because the tokens were both tradable and promised future utility on a network, like a access pass with redeemable value, creators have argued they fall outside the purview of existing securities law, which prohibits the unregistered sale of instruments sold on a prospect of increased future value.

During their heyday, digital token fundraises allowed companies to circumvent slower and more expensive fundraising routes and to retain more equity than they might with VCs.

Many ICO issuers also enriched themselves personally by vesting themselves with free tokens as payment for their development work before the tokens hit exchanges.

Yesterday, colourful ICO and cryptocurrency critic, the economist Dr. Nouriel Roubini, claimed that Ethereum’s creators vested themselves with about 75% of all the tokens in circulation:

Ethereum co-founder Vitalik Buterin denied Roubini’s numbers, and said there are no laws against what was done:

Critics say that, rather than product and business development, money raised by ICO has often been used to market the token and pump its value on exchanges, contributing to a bubble where valuation exceeds value.

Projects may also be contracting now due to a dearth of qualified developers, serious concerns about the stability, scalability and viability of Ethereum and other blockchain tech, increased investor caution and as serious regulatory scrutiny looms.

Dr. Doom Does DC: Blockchain Industry Execs Fire Back at Roubini’s Comments from US Senate Hearing

This morning, well known economist Dr. Nouriel Roubini and Peter Van Valkenburg, Director of Research at Coin Center testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs. The topic of discussion was cryptocurrency and the emerging blockchain technology. Roubini attacked and Van Valkenburgh defended.

“Doctor Doom,” as Roubini is frequently called, hammered both crypto and blockchain. He said crypto was the mother of all scams. Blockchain, according to Roubini is the most over-hyped tech – ever.

Roubini said crypto, and the underlying tech, remains not scalable, not decentralized, and an environmental disaster. The only benefit, in his opinion, is to help launder the money of criminals. Roubini’s prepared testimony is available here.

Below we have several comments from crypto industry executives that challenge Dr. Roubini’s harsh assessment. Of course, history will be the final judge and that will take years.


Ken Nguyen, CEO of Republic  and Crypto Republic, believes Dr. Roubini’s comments lack much needed balance during a time of rapid Fintech innovation.

“Roubini’s prepared remarks argue that cryptocurrencies are not a viable unit of account, means of payment or store of value. He also stated elsewhere that Bitcoin can’t scale and is not decentralized. I generally disagree, and find these damning statements mostly good for their entertainment value, but not particularly thoughtful,” said Nguyen. “Bitcoin and Ether are very much viable means of payment, and their “stored value” characteristics are not disputed by market participants or regulators. Any deficiency to date with respect to scalability or absolute decentralization can and will be improved over time. CoinCenter’s viewpoints are more nuanced and balanced, but that’s not what gets the attention these days.”

Marshall Hayner, founder and CEO of Metal – a platform for blockchain-based payments, investing, and rewards, believes that Roubini’s opinion will whither over time:

“Dr. Roubini’s presentation was disheartening to witness, and his statistics were majorly taken out of context. His comments on prices dropping 80% instills an unnecessary fear in individuals looking to enter the crypto fray, and raises alarms unjustly for those newly invested in the ecosystem,” said Hayner. “Those of us who have been attuned to the maturation of the industry understand that dips in the market are temporary — and certainly do not negate the lasting disruptive nature of cryptocurrencies as a whole.”

Hayner believes Roubini’s testimony is irresponsible and rooted in his own distrust of emerging technology rather than fact.

“… Most of his criticisms, particularly about stability and scalability, are currently being remedied by many well-known companies. I applaud our federal legislators for making strides towards formally exploring what a blockchain ecosystem would look like in the United States, however it is critical that they seek input actual industry experts, and not get distracted by doomsayers on the wrong side of history.”

Mick Hagen, CEO of Mainframe, a blockchain-powered network enabling censorship-resistant data transfer, called Roubini’s comments completely unjustified:

“This year we’ve seen exploding interest from legacy financial institutions to find ways to work with, not against, adoption of blockchain’s immutable ledger,” Hagen stated. “Roubini’s recommendation that financial services rely on permissioned databases — technology from the 80s — reflects a school of thought that places strangleholds around innovation and competitive advantage in the global economy.”

Hagen said Roubini’s arguments that the current ecosystem isn’t decentralized because of mining efforts led by other countries  is a problem.

” … [this] highlights the pressing need to create a friendlier regulatory environment in the United States for participation in the development of decentralized technology.”

Ken Lang, ndau Collective Member, creator of a “buoyant digital currency” (think stablecoin+), says Roubini’s remarks and prepared statement offers an incorrect characterization of blockchain – but some of his criticism is legitimate:

“…. no one is disputing that volatility is presents a barrier to cryptocurrencies becoming a true store of value. However, he ignores the potential for the industry to adapt and evolve over time. We can now create solutions by approaching economics and monetary supply in a way traditional economists have not considered before, because they didn’t have blockchain technology to solve their issues with.”

Lang says his company is addressing some of the shortcomings intrinsic to the current generation of crypto.

“Blockchain allows us to build an ecosystem using the properties of blockchain tech to create accountable governance and hopefully, price stability. Cryptocurrencies can vary in their use cases – it’s possible to have one cryptocurrency that’s a better unit of account than the dollar, one that’s a better store of long term value, and another that’s a superior means of payment. All three of these concepts can work together to exceed the utility of a fiat currency.  It will take time to get this right, but judging a new technology so soon is foolish when you look at the long history of the many such disruptions.”

Salman Habib, CEO & co-founder of Hellofriend, a blockchain-based social platform, says we are in a battle between innovation and legislation. Habib believes that naysayers who have a vested interest in the traditional financial system do not like the ongoing innovation:

“Blockchain technology is at the same critical point in adoption that television, film, and internet once were. There is no escaping the fact that there are severe challenges that exist to mainstream adoption, but one cannot dismiss the revolutionary nature of this technology. We have to focus on real use cases and recognize its long-term potential.”

Kalin Stoyanchev, Project Lead and Head of Blockchain at RNDR, a blockchain-based graphics rendering platform, posits that blockchain is much more than Roubini’s glorified databas. It provides something people want: trust.

“Centralized infrastructures are easy to use and widespread today, however, they lack the element of indisputable and consensus driven trust in the overall system. Blockchain is still in its early days – naturally, there will be some scams and bubbles here and there as there were in the early internet days, or really any young industry. However, as a whole, blockchain represents the next revolution in the tech space, and can even help alleviate issues surrounding social change, resource allocation, and countless other fields.”

Zach Warsavage, North American Strategist of Elastos, called Roubini’s testimony “fear mongering.”

“Senator Doug Jones questioned the dangers that come with blockchain technology and cryptocurrencies, when it comes to money laundering, human trafficking, and more. Although these are the questions that need to be asked and answered, one thing people frequently fail to realize is that all transactions are tracked and recorded on a public ledger — the last thing criminals want.”

Warsavage says Congress needs some serious education on blockchain tech. He warns that other countries may surpass the US in blockchain development.

“It is time for the United States to lead on blockchain — not fear it.”

Dr. Nouriel Roubini Prepared Testimony: “Crypto is the Mother of All Scams” & Blockchain Most Overhyped Tech Ever

Dr. Nouriel Roubini, aka Dr. Doom, has posted his prepared testimony in advance of the Senate Banking Committee Hearing scheduled to take place tomorrow (October 11, 2018).

As one may expect, Roubini has not held back one iota. His testimony is entitled; “Crypto is the Mother of All Scams and (Now Busted) Bubbles While Blockchain Is The Most Over-Hyped Technology Ever, No Better than a Spreadsheet/Database.”

Roubini, a prominent Professor of Economics at the Stern School of Business at NYU and an expert in international financial markets as well as financial bubbles, eviscerates crypto and the underpinning technology that some proponents describe as more important than the internet.

The testimony states:

“It is clear by now that Bitcoin and other cryptocurrencies represent the mother of all bubbles … Scammers, swindlers, criminals, charlatans, insider whales and carnival barkers (all conflicted insiders) tapped into clueless retail investors’ FOMO (“fear of missing out”), and took them for a ride selling them and dumping on them scammy crappy assets at the peak that then went into a bust and crash – in a matter of months – like you have not seen in any history of financial bubbles.”

Even better, Roubini hammers cryptocurrency by calling it less valuable than excrement;

“Actually calling this useless vaporware garbage a “shitcoin” is a grave insult to manure that is a most useful, precious and productive good as a fertilizer in agriculture.”

He says the crypto-apocalypse is the mother and father of all bubbles – unparalleled in its collapse.

Roubini is a believer in Fintech, the more plebeian type such as big data and AI. He is of the opinion that innovation in financial services will have nothing to do with blockchain technology and most certainly not cryptocurrencies.

He calls out cryptocurrencies as not scalable, not decentralized, and not secure .

“Whichever way you try to slice it blockchain leads to centralization and lack of security. And this fundamental problem when you try scalability will never be resolved. Thus, no decentralized blockchain will ever be able to achieve scalability that is critical to make it useful for large scale financial or any other type of transactions. Indeed, even those blockchains that do not have any scalability, like Bitcoin and those based on PoW, have massive mining concentration problems. The nature of mining implies that any form of mining has economies of scale that require massive scale – think of the massive energy hogging mining factories of crypto-land – and lead to massive oligopolistic concentration of power and lack of security …. With the centralization of power comes a serious problem of lack of security…”

Wherever you come out on this debate, this is classic Roubini and, most certainly, some of the most memorable Senate testimony in recent history. A must read.

You may read Dr. Nouriel Roubini’s Senate Testimony here.


Big Debate: Senate Banking Committee Schedules Hearing on Crypto. Witnesses Include Dr. Nouriel Roubini and Peter Van Valkenburgh

The Senate Committee on Banking, Housing and Urban Affairs, has scheduled a hearing that should be a fascinating debate on the topic of cryptocurrency and blockchain technology.

Entitled Exploring the Cryptocurrency and Blockchain Ecosystem, the hearing is scheduled to take place on Thursday, October 11th at 10:00AM ET at the Dirksen Senate Office Building 538. The hearing is open to the public but for those not able to be in Washington, DC, the proceedings will be live streamed on the Committee website.

The Hearing will engage two of the strongest voices in the crypto debate: Peter Van Valkenburgh, Director of Research, Coin Center and Dr. Nouriel Roubini, Professor of Economics and International Business, New York University Stern School of Business.

Roubini, also known by some as Dr. Doom, is a vocal detractor of cryptocurrencies having labeled it a scam and blockchain technology a “glorified spreadsheet.”

Valkenburgh, a policy wonk and regular suspect on Capitol Hill, is one of the most eloquent defenders of the new financial technology.

This is a Hearing that should not be missed. Currently, on Capitol Hill, there is much discussion as to how to best regulate coin or token offerings. Much of the discussion is exploratory as the terminology and process is quite new. The high profile scams affiliated with initial coin offerings (ICOs) has tarnished crypto to a degree yet many industry participants see opportunity with distributed ledger technology or blockchain tech.

You may watch the entire proceedings here.

Blockshow Vegas: Economist Roubini Skewers Crypto, Calls Blockchain “A Glorified Spreadsheet”

Turkish-American economist, professor and blockchain/crypto skeptic Nouriel Roubini spent the 25-minutes allotted him as an opening speaker at BlockShow Vegas this week systematically taking down the sacred cows notions of blockchain crypto.

Roubini also had choice words for so-called utility tokens, which he characterized as suited only, by design, for, “gouging consumers.”

Professor Roubini was dubbed “Dr Doom” when he predicted the global economic crisis of 2008.

He has a PhD in economics from Harvard and has consulted for the IMF and World Bank and advised in the U.S. Treasury Department.

Roubini began his BlockShow talk by thanking organizers for hosting him. Blockchain and crypto conferences typically feature mainly commercial presentations and few critics.

Roubini began by summarizing the gist of his arguments.

First, “Bitcoin and cryptocurrencies are the mother and father of all bubbles, a bubble that has already burst…”

Roubini was referring to Bitcoin’s precipitous 2017 price decline from $20 000 USD last December to $6000 USD in June -a 70% reduction, tracked closely by a 90% reduction in the price of alts like XRP and Litecoin in the same period.

Roubini also cited a recent study that found that 81% of ICOs (initial coin offerings) are “total scams,” with the remaining 19% “failing.”

“It’s a crypto-apocalypse,” he said.

Roubini’s second argument was: “blockchain is probably one of the most overhyped technologies ever… (with) the amount of hype vastly exceeding what are going to be the applications of it.”

Roubini acknowledged that “a finance revolution” is underway, but said, “It’s (a) Fintech, (a) Fintech revolution.”

“This revolution has nothing, nothing to do with Bitcoin and cryptocurrency.”

The finance revolution underway is instead a combined product of AI/Big Data and the Internet of Things converging, said Roubini, and while it, “is leading to a revolution in payment systems, in credit allocation, in insurance, in capital market activity, even in asset management … all these have nothing to do with blockchain and nothing to do with crypto.”

Roubini then began a volley of emphatic attacks on logic, design and practical problems in blockchain and crypto and misconceptions about central banking:

  1. ‘Cryptocurrency’ term a misnomer: “These are neither money, nor currencies,” said Roubini. At present, no cryptocurrency is being used consistently as a unit of account, meaning no things are priced in it; a viable unit of account must also be one common currency, “not thousands.”
  2. Cryptocurrencies are not viable means of payment: few transactions are being done in any cryptocurrency compared to fiat.
  3. Nor are they a reliable store of value: a currency must be a stable store of value with stable purchasing power over goods and services, said Roubini; today, any retailer is forced to immediately cash out into fiat, “or in a matter of a day you can lose 20%…”
  4. Scalability requires centralization: Bitcoin’s slow transaction speed of  5-7 transactions per second cannot be overcome, Roubini believes, without a “concentration-risk” that would produce centralization and insecurity.
  5. Central banks have done more to stabilize economies than wreck them:
    “There is also a lot of misunderstanding of financial crises…(with) the conventional wisdom in this industry that…financial crises are caused by reckless central banks who are printing money. The reality is that asset and credit bubbles inflation/deflation were occurring even before central banks were even created, and they were actually more more violent, more virulent and more severe before central banks were created…(which) were created to stabilize crises and stabilize prices…(S)ince we have created fiat currencies…the extent of these financial crises are much less than before,” said Roubini.
  6. Bitcoin’s written-in-stone economic policy of limited supply doled out like clockwork means it cannot function as money, which must have an adjustable supply: “Yes, bitcoin has a stable, long run supply so it cannot be ‘debased,’ but in any economy, a currency has to grow as much as nominal GDP otherwise in the long run you have deflation.”
  7. A viable currency must be sanctioned by society: “If you don’t have the support of the society for you currency…you have boom and bust and financial instability.”
  8. Bitcoin’s supply may be limited and deflationary, but there is a flood of other cryptocurrencies being printed that are undermining it: Cryptocurrency printing could rival quantitive easing initiated by central banks.
  9. Decentralization is a total myth: “Proof-of-work” is decentralized but not scalable. Vital Buterin has been promising “proof-of-stake,” but “It’s all talk, it’s all vapourware…(The) whole space is massively-centralized…at the level of miners…exchanges…developers…The top five miners in the world control 70% of the mining…I met the CEO of the largest mining operation in the world and he told me nonchalantly, ‘Well, we mine 25% of Ethereum and 40% of bitcoin…’ And who are those miners? Can you trust them? In places like China, in Belarus, in Russia?…and when we move from proof-of-work to proof of stake its going to become even more centralized, an oligopoly…”
  10. Decentralized exchanges have not materialized, and cryptos are dictatorships: “There’s been all this talk of decentralized exchanges- nobody’s using them….Vitalik Buterin is called ‘a benevolent dictator for life’…’Code is law’ in theory…but when something goes wrong, you do a fork. When the DAO collapses, ‘Sorry we’re gonna change the code’…It’s a system totally arbitrary.”
  11. Smart contracts are dumb: “People talk about smart contracts. These are not contracts and they’re not smart…” because contracts need to be interpreted by humans…”so the idea that code is gonna judge on it’s own is ridiculous, and it’s not smart because its full of bugs. 10% of those lines of code…are actually buggy- so they are not even smart.”
  12. The risks in crypto are great: Regular banking has insurance, bail outs, a secure system. “Crypto? Zero, zero insurance.” Dozens of 51% attacks have happened on small coins in the past year; no recourse if you lose your private keys.
  13. Slow materialization of promises is, “Not ‘Growing Pains’- it means crypto is failing: Truly disruptive payment systems scale, said Roubini, are secure, and get cheaper. Crypto’s slow development is not a matter of growing pains, “with things to work out before it takes off.” Crypto is failing, and, “transaction costs are rising, not falling.”
  14. ICOs are “non-compliant securities”…with none of the consumer protections granted to investors of registered securities. “Probably the only one that is not a security is Bitcoin.”
  15. Crypto is not “the new internet”: “When you have a technology that is truly disruptive, adoption is exponential.” An online world accessed by thousands of tokens, each with its own discreet online ‘ecosystem’ is an inconvenient world. “From an economic point of view…a world of having thousands of tokens makes zero, zero economic sense.”
  16. A token is the hallmark of a “cartel”: “No firm would ask you first to buy tokens to buy its goods and services rather than using fiat currency. The only reason you would ask someone to first buy a token (is) if you want to form a cartel to gouge the consumers and restrict the ability of others to compete,” said Roubini. “Either these are cartels to gouge consumers, in which case they are illegal -anti-trust would not allow it- or otherwise there is no economic logic to it.”
  17. The crypto space is rife with manipulation (pump and dump schemes, spoofing, wash-trading, front running and fraud) and most exchanges are in conflict of interest: Roubini notes, “massive amounts of self-interest and conflict of interest by exchanges who can front run their investors and own customers.”  He also mentioned Bitfinex propping up the value of Bitcoin (by issuing tether ‘stable coins’). “No wonder the SEC says there is no way we are going to approve the ETFs, when there is massive (academic) evidence of manipulation,” he said.

“So after a decade of all this talk about cryptocurrencies, what do we get?” asked Roubini, as he concluded.

“75% of those dapps are things like CryptoKitties or pyramids and ponzi schemes or casino games. I’d rather go to Las Vegas…”

Roubini then doubled-down on his dismissal of enterprise blockchain, “the most overhyped technology ever,”  claiming banks, at the behest of shareholders, have conducted thousands of failed experiments with blockchain, proving that the tech is “total nonsense.”

“And why is it total nonsense? It’s because there is no standard protocol like there was with the Internet. There’s no HTML, no HTTP. There’s a total chaos- total incompatible systems of one sort or another,” he said.

“Why would any firm anywhere in the world want to put…his spreadsheet on a public ledger…on hundreds of thousands of individual computers?”

“The reality is the only systems that are going to work are going to be private rather than public, permissioned rather than permissionless, and based on a trustee…approving these transactions.”

“But even if you have a private permissioned blockchain, what is it? It’s just a glorified spreadsheet.”

“Enterprise DLT is just doing a bigger spreadsheet, and at the end of the day…it’s like the old system.”

[easy-tweet tweet=”Nouriel Roubini calls #Blockchain the most over-hyped technology ever “]

Walmart Patents Blockchain System for Accessing Emergency Medical Records. Is Blockchain Required?

Walmart has successfully obtained a patent on a compelling system for storing medical records on blockchain that can be accessed in emergency situations, CCN reports. But is a blockchain really required?

The proposed system would allow first responders on the scene of an emergency to access the medical records of non-responsive patients by using a radio frequency identification (RFID) scanner to scan a patient’s wearable device, such as a bracelet.

The bracelet would store the “private keys” (decryption code) needed to unlock (decrypt) that patient’s medical information stored on a blockchain.

An additional biometric scan of the patient’s face, retina, iris or fingerprint would be required to authenticate access.

For privacy, says the patent, only records relevant in an emergency situation would be stored or accessible on the system.

The system seeks to expedite access to potentially lifesaving information, and the patent suggests the information could be further distributed to emergency room staff at hospitals using a series of Internet of Things (IoT) devices.

The patent application, “Obtaining a Medical Record Stored on a Blockchain from a Wearable Device,” was filed December 14th, 2016 and granted June 14th of this year.

On the surface the proposed definitely looks like one of the more compelling use cases for medical records on blockchain because of its multi-step system for securing private keys, its limited scope of access to information and situational specificity.

It is unclear, however, why the system’s underlying records would need to be stored on a blockchain and not on a more basic and efficient database also accessed through public-key cryptography.

“Blockchain fever” has been all the rage for the past few years as technologists and business people have sought to impose Bitcoin-like efficiencies (excision of middle-men, decentralized oversight, peer-to-peer transmission) on privately-controlled data systems.

Notions of blockchain for medical records conceive of global automated systems of only ever accessed by me and my doctor or by someone scanning my bracelet.

But participation in the Bitcoin network, so far the only truly decentralized blockchain (although concerns about mining centralization persist) is incentivized by possible rewards of bitcoins. That is why miners and others run nodes and crunch transactions- for fees and for the chance to win Bitcoins.

So unless the medical blockchain also generates a currency, “middle men” will be administering the system.

If that is the case, say critics of “blockchain-for-everything” like Jimmy Song, you don’t need a blockchain. You need an encrypted database.

Economist and professor Nouriel Roubini has repeatedly questioned “blockchain-for-industry-fever.” In “Blockchains are nothing more than a clunky process,” Roubini writes:

“In reality, blockchain is one of the most overhyped technologies ever. For starters, blockchains are less efficient than existing databases. When someone says they are running something “on a blockchain”, what they usually mean is that they are running one instance of a software application that is replicated across many other devices.”

“The required storage space and computational power is substantially greater, and the latency higher, than in the case of a centralised application. Blockchains that incorporate “proof-of-stake” or “zero-knowledge” technologies require that all transactions be verified cryptographically, which slows them down.”

Roubini does concede that the added expense and relative slowness of blockchains could be appropriate under very specific circumstances:

“Blockchains can make sense in cases where the speed/verifiability trade-off is actually worth it, but this is rarely how the technology is marketed. Blockchain investment propositions routinely make wild promises to overthrow entire industries…Consider the many schemes that rest on the claim that blockchains are a distributed, universal “world computer”. That claim assumes that banks, which already use efficient systems to process millions of transactions per day, have reason to migrate to a markedly slower and less efficient single cryptocurrency.”