(March 10, 2014) — In a series of tweets, Nouriel Roubini, famed economist and a professor at New York University’s (NYU) Stern School of business, publicly denounced the “crypto-currency.”
“Apart from a base [for] criminal activities, bitcoin is not a currency as it is not a unit of account or a means of payments or store of value,” Roubini tweeted.
The digital “currency” had been under scrutiny since its inception in 2009, but gained more skeptics through recent hacking crises.
Last month, a total of 750,000 bitcoins—roughly $375 million—were stolen from Mt. Gox, once the world’s largest bitcoin exchange. After a week of silence and a halt in trading, CEO Mark Karpeles made a public apology and filed for bankruptcy in Japan. The company also filed for US bankruptcy in Dallas yesterday.
Early this month, Flexcoin, a bitcoin bank, revealed that hackers had stolen 896 bitcoins worth $607,688 in an attack. “On March 2, 2014, Flexcoin was attacked and robbed of all coins in the hot wallet,” the company said in a statement. “As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately.”
Roubini emphasized the perils of poor regulations that make bitcoins vulnerable to hackers.
“So bitcoin isn’t a currency. It is a Ponzi game and a conduit for criminal/illegal activities. And it isn’t safe, given hacking of it,” he tweeted. “Hacking of credit cards [and] bank accounts [are] rare [and] customers [are] fully repaid for it. Who is going to repay the $1 billion fraud at Mt. Gox? No one.”
The downfalls of exchanges and banks have caused even more volatility in bitcoin prices, adding risk to an already shaky “currency.”
David Yermack, a professor of finance at NYU Stern School of Business, found bitcoin’s exchange rate volatility had been consistently much higher than all major currencies.
“One must conclude that holding bitcoin even for a short period is quite risky, which is inconsistent with a currency acting as a store of value and which greatly undermines the ability to function as a unit of account,” he wrote in a paper.
According to Coinbase’s data, bitcoin’s price plummeted to $537.81 on February 25, 2014, when Mt. Gox announced the closing of all transactions “for the time being.” The price had hit an all-time high a few months before the crisis on November 30, 2013, at $1,126.82 for a single coin. As of March 10, bitcoin was worth $631.78.
“Bitcoin isn’t means of payment as few transactions [are] in bitcoin. And given its volatility, all who accept it, convert it right back into $/€/¥,” Roubini tweeted. “[Bitcoin] bugs like gold bugs are fanatics who speak of [bitcoin] in cult-like religious ways. Like gold bugs, they have paranoid conspiracy views on the dollar.”