Litecoin, ripple and ethereum cryptocurrency 'altcoins'

Initial Coin Scams

May 10, 2018 Nouriel Roubini

There are now nearly 1,600 cryptocurrencies, and the number continues to rise. It is time to start recognizing their issuers' utopian rhetoric for what it is: self-serving nonsense meant to separate credulous investors from their hard-earned savings.

NEW YORK – Initial coin offerings have become the most common way to finance cryptocurrency ventures, of which there are now nearly 1,600 and rising. In exchange for your dollars, pounds, euros, or other currency, an ICO issues digital “tokens,” or “coins,” that may or may not be used to purchase some specified good or service in the future.

Thus it is little wonder that, according to the ICO advisory firm Satis Group, 81% of ICOs are scams created by con artists, charlatans, and swindlers looking to take your money and run. It is also little wonder that only 8% of cryptocurrencies end up being traded on an exchange, meaning that 92% of them fail. It would appear that ICOs serve little purpose other than to skirt securities laws that exist to protect investors from being cheated.

If you invest in a conventional (non-crypto) business, you are afforded a variety of legal rights – to dividends if you are a shareholder, to interest if you are a lender, and to a share of the enterprise’s assets should it default or become insolvent. Such rights are enforceable because securities and their issuers must be registered with the state.

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Nouriel Roubini

Writing for PS since 2007
156 Commentaries

Nouriel Roubini, Professor Emeritus at New York University’s Stern School of Business, is Chief Economist at Atlas Capital Team and CEO of Roubini Macro Associates. He is a former senior economist for international affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank, and was Professor of Economics at New York University's Stern School of Business. His website is NourielRoubini.com, and he is the host of NourielToday.com.

The Blockchain Pipe Dream Innovation
Getty Images

The Blockchain Pipe Dream

Nouriel Roubini & Preston Byrne
Even after a sharp correction earlier this year, the price of Bitcoin and other cryptocurrencies has remained unsustainably high, and techno-libertarians have continued to insist that blockchain technologies will revolutionize the way business is done. In fact, blockchain might just be the most over-hyped technology of all time.
show why the “distributed ledger” technology will fall far short of what has been promised.

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Robert Wolff May 21, 2018

Totally agree with Nouriel Roubini. Technology of crypto-currencies to change the course and authorities over humanity are likely doomed to fail.
The human mind and the physical instincts of the human (animal) body are determined by millions of years of evolution and mostly unchangeable within a reasonable amount of time.
But that means humans, in their current state of evolution, are evolving more slowly than advanced technology (which is moving much faster than the evolution of the human psyche and understands the Human Machine and is now able to bring it under mechanistic control.)
The only question now is which nationalistic or private institution for profit will be the most successful in bringing the individual human under mechanistic control, and profit the most from the technology that controls it?
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Don Thompson May 14, 2018

I lost all credibility for the author when he stated that Jay Clayton made it clear that he regards all cryptocurrencies as securities with the exception of Bitcoin. This is not even taking something out of context, it is purely false. He stated that all of the ICOs that he has personally looked at likely are securities and that each case depends on a facts and circumstances test under Howey. He also said some may start out as securities and then evolve to not being securities.

It is also false that most cryptocurrencies are not subject to KYC and AML. These are now being implemented by exchanges and many of the recent ICOs have sold only to accredited investors with full KYC compliance.

If the statistic of only 8% of cryptocurrencies get listed on exchanges is true (I doubt that it is since there are many less reputable exchanges who are more than willing to break the law) it is because the exchanges are unregistered and only list cryptocurrencies that they believe are not going to be deemed securities, not because the project has failed. If a startup raises money through VC’s like Uber but does not trade on an exchange, it does not mean it has failed.

Other more reputable studies have suggested the number of frauds is only around 20% not 81% (still extraordinarily high). A significantly higher percent will fail because of incompetence, not fraud. I do agree though that most ICOs were structured purely to attempt to circumvent the securities laws which has gone down significantly due to more guidance from the SEC and CFTC and most did/are currently in violation of the laws. However, comparing them to public companies doesn’t make sense since they are more similar to private funds that fall under exemptions and do not have many reporting obligations.

The benefits are a way to store value just like other commodities such as gold, no inflation or impact from monetary policies, greater security, almost instantaneous transfer anywhere in the world as opposed to waiting a week or more for a bank wire, and saving banks billions of dollars by no longer needing to act as a middle-man to verify transactions. This is why most banks are creating their own and heavily looking into this. Contrary to perception, the transactions are also easier to trace than current methods, unless Monroe is involved, which makes AML enforcement and prosecutions easier. The real benefits are the underlying blockchain technology which will impact all facets of life going forward, unrelated to cryptocurrency which was merely the first use of the technology.
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joel bernard May 13, 2018

What especially interests me about cryptocurrencies is their potential to (further) retard the effects of monetary policy by providing a potentially limitless source of non-jobs producing speculative investment during periods of monetary expansion. They provide a new range of financial products divorced from useful economic activity: another man-made hedge against low aggregate demand.

Is there anyone knowledgable who can comment on this possibility....?
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Robert REYNOLDS May 13, 2018

The emergence of cryptocurrencies is yet another glaring manifestation of the corrupt, reckless and crass nature of capitalism.
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Michael Public May 11, 2018

Because it is just software, banning crypto would be like chasing a ghost, think the prohibition when everyone was distilling moonshine in their garden. Rather just let people learn the hard way of the ills of alcohol (or crypto for that matter).
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Michael Public May 11, 2018

I remember he days before internet, the era of bulletin boards. You would connect to them directly with your modem, and if you wanted to connect to a different one you had to disconnect and often pay the new a fee. Most of them were scams - once you paid their fee the things they promised were not actually available.It was awful beyond comprehension. And yet, one day, the exact same technology gave way to a new version called the World Wide Web, and you needed to install special software called a browser. I was deeply skeptical and opted out of trying it until I could no longer ignore it some years later.

Crypto today is like bulletin boards of yore. What is of no use to anyone is yet another ICO. What is needed is a way to re-invent it into a powerful tool. Because it will probably have to be top down I suspect that the innovation will come from the big five - Google, Facebook, Amazon and to a lesser extent Microsoft and Apple.
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john mesrobian May 10, 2018

ICO's & Crypto Currency Banks - Agree with Nouriel - number of scams and counter party risks, hacking, Crypto Banks can close overnight and our funds are lost.

We see ICO's and Crypto's as signaling and part of MKT Tops, when the MKTS fall and fall hard, ICO's, Crypto's and other bubble financial products will disappear and cause significant losses, in many cases 100%.
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