🔒 Roubini exposes Bitcoin manipulators: One of the biggest scams ever, price should be 80% lower

LONDON — NYU professor Nouriel Roubini shrugged off the ridicule of his peers when steadfastly warning against the Great Financial Crisis of 2007 when the world could only see economic sunshine. But “Dr Doom” turned out to be “Dr Right” – and he’s at it again with a dire warning about the price of Bitcoin which he says has been manipulated by what he calls a criminal currency exchange Bitfinex in a classic “pump and dump” scam. Roubini reckons the Bitcoin price has been pushed at least 80% beyond its true value. In this podcast we go back to 2007 to confirm Roubini’s impeccable credentials and then move forward to a warning that should strike fear into everyone who has an interest in the Bitcoin market. – Alec Hogg

I first came across Nouriel Roubini in 2007 at the World Economic Forum in Davos. Back then, the WEF annual meeting would run from the last Tuesday night in January through to Sunday lunchtime. The first must-attend session was a high powered panel discussion on the World Economic Outlook held at 9am on Wednesday morning. Back in 2007, the mood among the cream of the world’s economists was buoyant. Prof Laura Tyson from the University of California Berkeley and former chair of the US President’s Council of Economic Advisors reflected what most of them were thinking when she put forward her case…

LAURA TYSON: Go beneath the surface, here are some reasons to be very optimistic for the coming year. First of all, we’re enjoying a long run trend – our colleague Ken Rogoff has done some very good work on this – of reduced volatility in both output and financial markets interest rates. Second of all, there is real rebalancing now going on in growth across countries. So, the world is no longer as dependent on a single locomotive, the United States. In fact, of course last year was a milestone year for the global economy, because in real purchasing power parity terms the Emerging Markets became more than half of the world economy, which is why almost half of this panel consists of representatives from the emerging market economies. If you look at projections for this coming year, what you’ll see is an amazing similarity of predicted growth rates for the US, Europe and Japan in the nature of 2%, 2.25%. We haven’t seen that kind of convergence of growth rates in quite some time. What it really means is that Europe and Japan have picked up and the US has slowed down…..

And so on. Tyson, the man she quotes, Harvard professor Kenneth Rogoff, famous Israeli economist Jacob Frenkel, now chairman of JPMorgan Chase, and their counterparts from India and China sang from the same hymn sheet. The sunshine emanating from leading economists just months before the world was hit by the Great Financial Crisis, was blinding. But a Casandra did exist. His name is Nouriel Roubini, a man so far out of the mainstream that he became referred to as Dr Doom. The video of that 2007 WEF panel discussion shows the other economists passing each other ho-hum glances during what turned out to be Roubini’s chillingly accurate two and a half minute prediction of what was just around the corner…

FACILITATOR: “Nouriel, all this good news is almost almost sickening. We’ve come four fifths of the way around the table and everyone’s seen nothing but blue skies ahead, but you may not agree….

NOURIEL ROUBINI: Somebody has to play contrarian. I would say that the main threat to the global economy is the question of whether the US economic slowdown is going to turn into a soft landing or rather a hard landing. I believe that actually there are meaningful reasons that the US is going to end up in a hard landing and a hard landing could take two forms. One that is less likely today, an outside recession, but the other one I think is more likely, a period of growth recession – a period of time when the growth of the economy is between zero and 1% for a few quarters, as opposed to being 2.5%.

And the reason why I say it’s that is that in my view, first of all the housing recession is getting worse. We have still falling building permits that means a lot lower starts, lower construction, lower completion and with a lag that’s going to lead to a significant fall in employment, about half a million jobs in the housing sector. And the other is some elements of a contagion from the housing recession to other parts of the economy with a lag there’s gonna be a reduction in residential construction.

That makes sense. Janet Yellen, president of the Federal Reserve Bank of San Francisco, spoke about these ghost towns in the West – empty developments outside of Las Vegas, in California and so on. So why would you build a shopping centre or offices if nobody’s living there. So it’s going to be spillover from residential and non-residential. And we are now also in the verge of a recession in the auto sector and in the manufacturing sector. The signals have been very weak in terms of production and employment.

And everybody said if there’s going to be a housing recession and there’s going to be a slowdown in consumption, we’re going to have a pickup in investment by the corporate sector, because the corporations are full of profits and earnings. It’s true. But what’s happening is that actually in the last couple of months capital goods orders have been falling so firms that runs a profit but they’re not investing and are giving back to the shareholders.

We’ve had the biggest US share buyback bonanza in US history – $500 million of share buybacks means that firms are not finding profitable investment. Now of course housing by itself cannot cause a hard landing because is only 6% of GDP and the crucial thing is consumption that is 70% of GDP in the United States. And the question is whether it’s going to have spillovers on consumption over time. My view of it is yes, it’s whether it’s going to happen over 2007. Why? You’re going to now have these losses in jobs, in housing and then in the manufacturing sector. And that’s going to increase while job creation in the service sector is going to slow down.

Real wages have not been growing very fast relative to productivity in the last few years. The US consumer has had for last few years negative savings and how he’s been able to consume more than his income is essentially by borrowing against his housing wealth. They’re essentially using his home as ATM machine and this kind of a wealth effect has been driving consumption. Now wealth effect is falling because of falling housing prices with reduced mortgage equity withdrawal. And now there is a resetting of these adjustable mortgage rates. Debt servicing costs are going up, wealth is falling and it’s going to have a negative effect on consumption. So I worry about the US hard landing.

FACILITATOR: At least three of the optimist have been trying to catch my eye for the for the last few minutes to take issue….Jacob you go first.

JACOB FRENKEL: Well, just to make it fun, but also serious….I really disagree.

And we know who was right on that one. When the markets started crashing, Roubini was elevated to guru status in the media. Dr Doom became Dr Right. And ever since, when the consensus looked too cosy, like many others, I have sought him out as the voice of truth. So my ears pricked when the Bloomberg Surveillance team caught up with the inimitable NYU professor to ask him about Bitcoin. His response is in a similar vein to those warnings he made ahead of the Great Financial Crisis…

NOURIEL ROUBINI: First of all, for a long time the regulators were asleep at the wheel when this scam was occurring. I mean, think about the ICOs (Initial Coin Offerings). These are just things that are created to skirt completely securities laws. You invest in a company you get debt or equity. In this case what do you get? A plastic token that gives you rights on nothing. They should be illegal. But thousands of ICOs have occurred. So for many, many months there were asleep at the wheel. And they even allowed these derivatives futures to be created. Luckily, now, they’ve got religion and have said these (Bitcoin) ETFs that they wanted to create that were going to be investing into illiquid cryptocurrency, would not be allowed. But that’s been too little too late so far.

BLOOMBERG: They put massive margin requirements on them to trade futures, north of 40%, but given the price action of the last month, you wonder whether north of 40% was enough Professor?

NOURIEL ROUBINI: It was not enough. You know Bitcoin has fallen in value by 60% in six weeks. There is volatility of 20%, 30% per day; has fallen 30% last month, 15% overnight. You need much higher margin requirements. I mean their typical situation which a bunch of insiders pump it higher and higher, was outside paths of manipulation, and every sucker was a retail investor both at the peak between Thanksgiving and Christmas and New Year at $20,000 and they lost their shirt. This was really a scandal. This was outright criminal manipulation. There is strong evidence that the price of Bitcoin has been manipulated.

bitcoin cryptocurrency blockchain visualisation

BLOOMBERG: What is that evidence that the price of Bitcoins been manipulated?

NOURIEL ROUBINI: Well, there are several things. There have been some econometric studies that suggest that this alternative currency Tether is a fiat currency printing $2 billion of money out of nowhere. Fiat is not mined. Tether USDT has been used to prop up the value of Bitcoin in the last few months. These econometric studies suggests that without this manipulation, the price of Bitcoin would be down by up to 80%. There’s another study published in the Journal of Monetary Economics that suggests that when the price went the Bitcoin price went from $150 to $1500, there was outright again, pump and dump and manipulation. There’s clear evidence of manipulation.

BLOOMBERG: What’s so important here, is sacred, is the bid in the and whether it’s Drew Fudenberg or Alvin Roth, the Nobel laureate (Economic Sciences: 2012), in every advanced economics textbook, there’s a thing called auction theory. Dr Roubini, I’m not editorializing I’m simply stating the fact: I don’t see transparent bid/ask processes in Bitcoin. Do you?

NOURIEL ROUBINI: No. There is no transparency of any sort. There are lots of exchanges that are in offshore financial centres. Many of them have not been audited. There is this Bitfinex that owns Tether, Tether has been creating money literally out of thin air. Honestly it is the biggest scams ever because they claim that they have about $2 billion of money backing the one-to-one fixed exchange rate between this Tether and the US dollar. There is absolutely no evidence of it. Bitfinex, this criminal exchange, is controlling this other Tether, is creating money out of nowhere, pretending that is backed by real dollars. They cannot have convert them back into real dollars and then been using it for the last few months to push up the price of Bitcoin. It’s really a criminal activity.

So to all the Bitcoin enthusiasts, you have been warned.

Featured today was Dr Nouriel Roubini, one of the world’s most respected economists and the only one who accurately predicted the 2007 Global Financial Crisis.

This has been the Rational Perspective. I’m Alec Hogg. Until the next time, cheerio.

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