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The price of bitcoin is 'driven by manipulation': Nouriel Roubini

Nouriel Roubini, professor of economics at New York University's Stern School of Business and CEO of Roubini Macro Associates joined Yahoo Finance to discuss his thoughts on bitcoin.

Video Transcript

JULIA LA ROCHE: Welcome back to Yahoo Finance Live. We are joined now by Nouriel Roubini, NYU professor of economics at NYU's Stern. Nouriel, always great to have you on.

We'd like to share some breaking news that's just coming across. We're getting some headlines that President Trump has defied Congress and has vetoed the bipartisan defense policy bill. In some comments, Trump called the defense policy bill a, quote, gift to China and Russia.

And, of course, I know you're someone who does look at geopolitical events. And we are shaping up for a new administration in 2021. Your reaction to this news that's just crossing.

NOURIEL ROUBINI: Well, you know, I mean the president is becoming unhinged on everything. He's literally trying to do a military coup, following the advice of Mike Flynn and others, in order to subvert the results of the election.

He doesn't want to pass the stimulus bill. And if he doesn't, we may end up in a government shutdown. And now, he's accusing the defense bill of things that don't make any sense, you know. He has even denied that this major hack attack came from Russia. He claims that it came from China without any base. And if there is anything that actually can help us to push back against our strategic rivals, whether Russia or China or North Korea or Iran, it's going to be this defense bill.

So, literally, the guy is becoming completely unhinged across the board. It's just politics. Maybe he's trying to prepare himself to run again in 2024. Maybe he's losing his marbles. I don't know what's going on. But pretty much everything he's doing, it doesn't make any sense.

ADAM SHAPIRO: Nouriel--

JULIA LA ROCHE: Nouriel-- go ahead, Adam. You go ahead.

ADAM SHAPIRO: Go Julia. It's all you, Julia.

JULIA LA ROCHE: Well, I would like to shift the conversation, and thank you so much for sharing your thoughts on that, to cryptocurrency. Of course, Bitcoin. I think the last time we had you on, you got quite a bit of attention.

I'm just looking at Bitcoin's price now. It's above $23,500. And you put out a tweet that Bitcoin has no place in an institutional investor or retail investor's portfolio. Yet we continue to see big name institutional investors kind of flood the space. Paul Tudor Jones, for example. Even Anthony Scaramucci. And then, we're also seeing the retail investors. Why does it not deserve a place in a portfolio?

NOURIEL ROUBINI: First of all, calling it a currency is not a currency. It's not a unit of account. It's not a means of payment. It's not a single [? numerator. ?] It's not a stable store of value.

Secondly, it's not even an asset. Either an asset has both income, use, and capital gain, like bonds, like stocks, like real estate. Or like in the case of precious metals, they don't give you an income. But gold gives you industrial use, it gives you [INAUDIBLE] as jewelry, and as a capital gain. While in the case of Bitcoin, there is no income, there is no use, there is no utility.

The only thing is a speculative self-fulfilling kind of rise. And that rise is driven totally by manipulation. There's been an academic study suggesting that these pseudo stable coin Tether is being created by fiat. This year alone, the increase in the supply of Tether has been another $16 billion out of the initial 4. So, it's 20. And every time the price of Bitcoin goes down, literally overnight they issue more of this Tether that is used literally to manipulate the price of Bitcoin.

So, the price of Bitcoin is totally manipulated by a bunch of people, by a bunch of whales. It doesn't have any fundamental value. And like in 2017, when it went from 1,000 to twice that, and then in '18 it crashed from 20,000 down to 3,000, I think we are close to the point in which this hyperbolic bubble is going to go bust. And it's going to go bust because law enforcement authorities are having an investigation of Tether and of the company behind it.

And in my view, like in the case of BitMex that was the biggest scam and criminal derivative cryptocurrency house has being indicted, you can have an indictment of those who are behind Tether. When that's occurring in the next few months, there will be a crash of Bitcoin and all of the other cryptocurrencies. They're not even currencies. They are shit coins.

ADAM SHAPIRO: Nuriel, I want to break this down in several parts. Because I think a lot of investors with Bitcoin at over $23,500 today need to pay attention. Why would there be, I'll call it a contagion, if the feds crack down on that other crypto, to Bitcoin? And how do you look at the fact that central banks worldwide are looking at creating digital currencies? Are they different than what we see with the Bitcoins and the other cryptocurrency is already out there?

NOURIEL ROUBINI: Well, there are several academic studies, including one by the University of Texas, that showed that every time the Bitcoin prices are weakening, there was an issuance of this Tether. There is literally a stable coin created out of Fiat. There has been no update that these cryptocurrencies are backed by any assets. And it's just printed by fiat used to buy Bitcoin. So, it's actually total price manipulation.

There's plenty of evidence that there are other schemes of manipulating cryptocurrency. There are pump-and-dump schemes, hundreds of channels on Telegram or on WhatsApp that is frontrunning, that is wash trading. Pretty much anything that is being done for penny stock is done for crypto and Bitcoin to the power of 10. That's a totally manipulated market. It's not driven by fundamentals. It's driven by insiders, by criminals, by whales, by scammers. That's the reality and there is evidence on it. And that's why there are criminal investigations that are going to reach their climax in the next few months.

Secondly, central banks are going to introduce digital currencies. But, first of all, these digital currencies will have nothing to do with crypto or blockchain. Today, every private commercial bank has a bank account with the Fed. We, as individuals, are [? non-corporational ?] are non-financial. We don't have access to the balance sheet of the Fed.

Suppose that tomorrow we have access to the balance sheet of the Fed. That's what a central bank digital currency means. It's not digital money. Digital money already has existed for decades. We have bank accounts, we have wire transfers, we have AliPay, we have WeChat Pay, we have Venmo. We have all sorts of other digital payment system.

So, what's new is not that it's going to be digital. There are thousands of digital payment systems that work all over the world. It's that we don't have a situation where individuals like you and me have access to the balance sheet of the Fed. Once we do, we don't need to have a bank deposit for making cheap, fast, instantaneous transactions that our payment system then clears and settled instantaneously. So, once we have a central bank digital currency, not only crypto-- this junk, these shit coins that don't have any payment use. But even other digital payment systems like bank deposit or Venmo and PayPal are going to be dominated by central bank digital currency. And this scheme technologically has nothing to do with crypto, has nothing to do with blockchain. It's going to be centralized. It's going to be permissioned. It's going to be a system that is going to be private, not on a public decentralized ledger.

So, calling it crypto is not true. It's a central bank digital currency. It's going to revolutionize payment systems and is going to destroy any pseudo cryptocurrency that is not a cryptocurrency and is not a currency.

The people don't know what they're talking about when they're talking about central bank digital currency. They get excited. They say even central banks are going to crypto. Just the opposite. They don't know what they're talking about.

JULIA LA ROCHE: Nouriel Roubini, professor of economics at NYU's Stern and CEO of Roubini Macro Associates. Always a pleasure to have you on. Wish you a happy holiday season. And thank you, again.