By Samuel Indyk
Investing.com – Nouriel Roubini, the economist nicknamed Dr Doom, has said that Bitcoin and other cryptocurrencies look “like a bubble”, adding that there is no way to determine their fundamental value.
In an interview with analysts at Goldman Sachs (NYSE:GS), Roubini said that calling them “currencies” is a misnomer.
“Currencies must have four qualities,” Roubini said. “They must be a unit of account, a means of payment, a stable store of value, and act as a single numeraire. Bitcoin and other cryptocurrencies have none of these features.”
Dr Doom continues by comparing the Bitcoin network to that of Visa (NYSE:V), which can handle 65,000 transactions per second compared to Bitcoin’s seven.
“Even the Flinstones had a more sophisticated system by using shells as a single numeraire to compare the price of different goods,” Roubini joked.
Roubini said that cryptocurrencies have no income or utility so there is no way to arrive at a fundamental value. He goes on to describe a bubble as “where the price of something greatly exceeds its fundamental value”.
“In that sense, this looks like a bubble to me,” Roubini said.
Institutional Investment
Roubini was also asked why institutions are becoming interested in offering cryptocurrency services if they are in a bubble.
“Given the large trading volumes, it pays to facilitate trading activity, custodial services etc.,” Roubini said. “But I don’t see it becoming mainstream.”
The New York University economist rubbishes the argument that prices will rice as a result of asset reallocation from gold, saying that he is doubtful institutions will want exposure to an asset that can drop by 15% in one fell swoop.
Roubini also addresses Tesla's (NASDAQ:TSLA) decision to allocate crypto assets in their treasury account, saying that no serious company would do that because treasury accounts must be invested in stable assets with minimal risk, even if they provide a very low return.
Roubini has been critical of Bitcoin and other cryptocurrencies before. Back in April 2013, Roubini took to his Twitter account to call Bitcoin “the bubble flavor of the day”.
On that day, the price of one Bitcoin was $230. Last month, the price of Bitcoin hit a high just below $65,000 so if it was in a bubble then, it is an even greater bubble now.