Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

- It's false that it's not a medium of savings. It has reservation demand which is the only reason it has a price. It does not matter that it has "no assets in it", whatever that confused statement means. The dollar also no longer has any asset backing. The medium of savings role exists while people perceive there is value in holding a monetary good in the hope it will appreciate in the future. They perceive it will appreciate because it has comparative advantages to other goods which serve a similar purpose. Bitcoin has many comparative advantages to other monetary goods. In particular, it allows the transfer of value to anyone, anywhere in the world, near instantaneously, with low transaction fees, without the need for a trusted intermediary such as a bank. This has literally never been possible before in the entire history of civilization.

- It's true that bitcoin is not currently a unit of account. This mostly has to do with the fact that it's still nascent and needs to increase in liquidity. As it does more and more entrepreneurs who are primarily accepting bitcoin (it will start with the miners) will begin to calculate profit and loss in bitcoin terms

- It's true bitcoin is used for so-called criminal activities. But so too is the dollar. In fact, the dollar isn't just used for buying illegal drugs, the dollar is used to funnel gigantic sums of tax payer wealth to well connected bankers when their businesses fail. Which is the bigger crime, Nouriel?

- Bitcoin isn't susceptible to hacking - individual bitcoin businesses are susceptible to hacking such as the incredibly incompetent MtGox, which deserved to fail. Blaming Bitcoin for the incompetence of a particular business is like saying the dollar is a failure because Lehman Brothers collapsed. To me that is a much worse "hack" than anything that happened with Gox.

- And no, Bitcoin is NOT a ponzi scheme. Bitcoins are a monetary good whose price fluctuates with demand on the market just like any other monetary good, such as gold.

In absence of an accurate description on the wiki, here goes:

"- Bitcoin is not a unit of account as no price of goods and services is set in Bitcoin unit nor it ever will."

When Bitcoin first started out, virtually everything sold for it was denominated in BTC. Some places still do this, but due to the volatility of Bitcoin right now (which is really just a result of a small market gaining traction, and is unavoidable for a new non-government-backed currency) it is more practical to denominate in USD - either visibly or behind-the-scenes.

This was not the case when Bitcoin started out, and will almost certainly not be the case in the future - as the transactional market for Bitcoin continues growing, it will eventually stabilize in terms of value, and things will be widely priced directly in BTC again. See also next answer.

"- Bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥"

No requirement exists that a means of payment must exceed a certain arbitrary transaction volume, so that argument is invalid right off the bat. Whether it's a common means of payment has nothing to do with whether it's a means of payment at all.

BTC are currently commonly exchanged back into other currencies after receipt - and again, the claim is false, it is definitely not "all" - to cope with the aforementioned volatility of a "young currency" BitPay, Coinbase etc. serve as "stabilizers" - they allow for adoption to increase during a volatile period, thereby solving the chicken-egg problem of volatility and adoption; over time volatility will decrease (as it has already been doing) as the adoption grows.

TL;DR direct-exchange services such as Coinbase and BitPay are really just temporary coping mechanisms that are absolutely necessary for Bitcoin to grow through its first adoption period.

"- Bitcoin isn’t a store of value as little wealth is in Bitcoin and no assets in it"

"Young currency" applies, again. And again, whether it is a reliable store of value right now, has nothing to do with whether it's a store of value at all.

If I had to summarize the arguments made, these are the big mistakes that are being made:

- "It's not a reliable/useful $concept, so it's not a $concept at all." (obviously incorrect; unable to separate opinion and definition)

- "Very few people use it, so it's useless" (self-fulfilling prophecy, basically, and classic social adoption issue)

- "People don't denominate things in BTC, so BTC is not a currency" (irrelevant, that is not what the definition of "currency" is)

- "The news said that it got hacked / is only used by criminals, so surely that is true" (appeal to... not even sure what to call it, authority? biased source?)

Care to explain why, or is this just your self-affirmation mantra?

Now, to further complicate things, you have to put a value on that piece of that puzzle that actually changes hands during these transactions. Realistically, the value of it doesn't even matter if I want to go CAD -> BTC -> BTC -> USD. As long as the value between CAD and USD makes sense, the transaction was a success and all parties are happy.

This is what most people, generally the investment folk, don't understand about our new little technology here. Bitcoin isn't just about the value of a Bitcoin and a Bitcoins buying power. Bitcoin is a network. The value of the fuel for that network will very as people need it and as the cost associated with generating that fuel change. This is irrelevant though as the price of Bitcoin is not the measure of its usefulness, or its success.

This is IMHO the strongest argument against Bitcoin and the reason why a long-term economy could not depend on it. The problem with cryptocurrencies is the impossibility to control the monetary mass.