Professor Nouriel Roubini Calls the Blockchain a 'Glorified Excel Spreadsheet'

Professor Nouriel Roubini, the economist nicknamed "Dr. Doom" for predicting the housing bubble crash of 2007-2008, who is one of the biggest crypto bears in the world, called the blockchain "a glorified Excel spreadsheet" at yesterday's panel on cryptocurrencies at the Milken Institute Global Conference 2018 in Beverley Hills, California. Naturally, this didn't go down well with the Bitcoin (BTC) and blockchain advocates at the panel, and the resulting "cryptobrawl" was by all reports quite entertaining.

Roubini, who teaches economics at New York University Stern School for Business, and who is quite famous for his generally bearish views on financial markets in general and blockchain/cryptocurrencies in particular, had previously launched several attacks on Bitcoin -- calling it "a Ponzi scheme", a "lousy" store of value, and "a conduit for criminal/illegal activities" and "the biggest bubble in human history" -- and the blockchain, calling it "one of the most overhyped technologies ever."

And, sitting at a panel, with Alex Mashinsky -- founder of Celcius Network, an Etherium-based peer-to-peer platform for lending/borrow (based on the idea of using your crypto holdings as collateral) -- and Bill Barhydt -- founder and CEO of Abra (the company that developed the Abra mobile app for cryptocurrency trading) -- Roubini didn't hold anything back.

“All this talk of decentralization is just bullsh*t,” said Roubini, which Mashinsky countered with "Everything you just said is irrelevant"; as for Barhydt, he said that he didn't "even know where to begin."

After the moderator, Anna Irrera, who is a Fintech correspondent for Reuters, asked for a timeout to let the parties cool off, another panel participant, Brent McIntosh, a lawyer who works for the U.S. Department of the Treasury, offered to "step in and regulate this panel."

When Mashinsky said crypto assets would let people bypass banks, Roubini replied “You’re just making stuff up."

Roubini also called Bitcoin a "bubble" and said that people who "arrived late to the party are the suckers." After hearing that Roubini had never even bought a single bitcoin, Mashinsky, told Roubini: "Why don’t you buy one coin and then tell us how it works." And Barhydt made fun of Roubini by saying "It’s like a horse salesman saying we don’t need combustion engines."

Despite Roubini's extremely bearish attitude towards cryptocurrencies, he is a little less critical when it comes to blockchain technologies and can see some use cases for them: "Ultimately, blockchain's uses will be limited to specific, well-defined, and complex applications that require transparency and tamper-resistance more than they require speed — for example, communication with self-driving cars or drones."

Tether Issuance Correlated with Bitcoin Price Surges, Academic Research Finds

  • Research by University of Sussex Prof. shows both Tether and Bitfinex markets for BTC have 'decoupled' from wider market on two occaisions in last 12 months
  • However, even accounting for deviations in USDT value compared to USD, Bitfinex prices remain anomalous
  • Variation in Bitfinex markets correlates with introduction of USDT/USD trading on the platform in November 2018, and to massive issuance of Tether beginning in March 2019 

Recent work has exposed problems in the relationship between cryptocurrency price data and the models that have attempted to track its price movements and assess risk.

The work from the University of Sussex Professor of Finance (Accounting and Finance) Carol Alexander and PhD student Michael Dakos has also exposed further information regarding the much-discussed 'Tether premium' on the price of Bitcoin. Especially, it exposes a so-called 'decoupling' in price relationships between the high-volume BitFinex bitcoin exchange and other well-established markets at two distinct points in the last two years.

Crypto Pricing Data Still Leaves Much to be Desired

Their recent paper, 'A Critical Investigation of Cryptocurrency Data and Analysis' (published in the journal Quantitative Finance) has thrown up a slew of problems that call into question past analysis of cryptocurrency pricing, and attempts to model the markets for Bitcoin et al.

For followers of the politics and legalities of crypto, however, something else revealed by the research is equally fascinating. In contrast to the researchers' overarching conclusion that much of the price deviation between cryptocurrency markets before 2018 has now reduced significantly - along with the opportunities for arbitrage between them - they found that markets for BTC and ETH featuring Tether (USDT), or hosted by Bitfinex, remain notable exceptions.

Using data collected from the Bitfinex, Coinbase, Gemini, Kraken and Poloniex exchanges via their APIs, the paper found that the price spreads seen across USDT-using exchanges diverged significantly from the USD/BTC pricing on Coinbase, Kraken and Gemini during the last quarter of the research's sample period - ending July 2019.

They largely attribute this variance to variations in the value USDT itself. This is a long-discussed phenomenon, and not all that surprising considering the almost constant conjecture regarding the deposits backing its peg to the US Dollar and the less-than-transparent management relationship between the two.

That ongoing situation was brought back into focus during April of this year, with revelations regarding part of those deposits in fact being 'lent' to Bitfinex by Tether's management in an agreement secured by illiquid shares in the exchange's parent company, and an ongoing enquiry by New York's Attorney General.

What is even more eyebrow-raising about the findings, however, is that even when correcting for variations in the value of USDT compared to USD, BitFinex's prices have remained anomalous during periods at the end of 2018 and in late spring of this year.

chart showing decoupling between USDT and USD prices for Bitcoin in 2018 and H1 2019The variation in prices of BTC in Tether and USD across exchanges based on Coinbase's USD/BTC market

"The decoupling of the Bitfinex BTC price (even after tether adjustment)", the paper asserts, "coincides exactly with a significant decline in BTC/USD price levels during the fourth quarter of 2018". It then goes on to say that this, in turn, was an event that occurred very close to the introduction of the USDT/USD pair on BitFinex in November of that year, an event that "effectively ended" the Tether-Dollar parity, a situation compounded by its addition of margin trading and up-to 3.3x leverage on the pair just a month later.

The research continues and expands on the work done by Amun Research in the wake of the New York Attorney General's legal moves to investigate the relationship between Bitfinex, Tether and the Crypto Capital Group. Its work charted the details of the relationship between the three entities, the impact that relationship appears to have had on the Tether reserves and the sturdiness of its Dollar peg - it also noted the first signs of a decoupling between Bitfinex’s BTC prices and the wider market in the immediate aftermath of the NYAG story developments in April of this year.

It notes a premium on the price of Bitcoin on Bitfinex in late April, which it attributes to a rush among users to get their money out of the exchange’s wallets - a procedure much easier to perform in Bitcoin than via fiat withdrawals - evidenced by an on-chain exodus of almost  $250 million-worth of BTC and ETH flowing away from Bitfinex address the day developments became public knowledge. It also notes the beginning of a new Tether premium on BTC purchases and other factors implying that crypto traders were looking to move assets away from USDT.  

The work of Alexander and Dakos picks up Amun’s baton and traces the price relationships up until July, by which time the differences in price had largely disappeared. While it shies away from outlining a causal relationship, it does note an interesting correlation between the attenuation of that disparity and a massive issuance of Tether seen subsequent to the Bitfinex story developments.

Bitfinex, Gemini,KRaken, Poloniex spreads against Coinbase

“A second Bitfinex price decoupling occurs in mid-April 2019,” the researchers note, before adding that “Most alarming of all” this coincides with “an immense increase in the supply of tether by more than 1.5 billion tokens between mid-March and late June”. It also adds that this increase in Tether supply correlates with an impressive rise in the price of BTC.

The paper then takes time to note several articles linking Tether to the rise of bitcoin values in 2017, including a paper by John M. Griffin and Amin Shams that finds price movements in 2017 on Bitfinex could not "be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.”

The implication here, then, appears to be that March/April Tether issuance facilitated not only a market-pumping escalation in Bitcoin values but served to provide a way for Bitfinex to correct anomalies in its markets caused by its own PR problems and the exodus of funds from its wallets while the investigation into it proceeds in New York.

If such an analysis proves to be true, this would further undermine the value of Tether - as pointed out by the Amun Research work - around 25% of its reserves are in fact secured not by dollars, but by shares in the Bitfinex parent company.

You can read the paper in full here.

Featured image via: Pixabay