- Nouriel Roubini flagged FTX's rescue deal for Binance as a sign crypto investing is a Ponzi scheme.
- The "Dr Doom" economist noted FTX had itself been bailing out struggling crypto firms.
Nouriel Roubini has flagged Binance's emergency deal with troubled exchange FTX as a sign that crypto is a kind of Ponzi scheme.
Crypto exchange Binance stepped in Tuesday with a potential takeover deal to rescue its rival FTX, which it said is facing a liquidity crunch.
The move stunned the crypto world, which had viewed Sam Bankman-Fried-led FTX itself as a "lender of last resort" after it bailed out struggling crypto firms this summer.
"First FTX bails out collapsing crypto Ponzi scams. Now FTX is collapsing & being bailed out by Binance," Roubini said in a Tuesday tweet.
"But who will bail out Binance when that crappy house of cards collapses? Crypto is Mother Of All Ponzi Schemes!" he added.
The economics professor at NYU Stern, whose nickname is "Dr. Doom," suggested via the tweets that there are parallels between the cascading bailouts and a Ponzi scheme, where existing investors are paid returns using funds collected from new investors.
Crypto lenders, brokers and other firms handling digital assets have come under the microscope over a lack of transparency over how they manage risk around the customer funds they have in custody.
"When leverage is used without proper risk management, it can lead to liquidations and mass panic, leading to institutions becoming bankrupt," Global Block strategist Marcus Sotiriou has said.
Binance's deal to bail out FTX sent shivers through the crypto world, reviving fears about liquidity issues that emerged when Three Arrows Capital imploded in June from its exposure to failed stablecoin Terra.
It was especially stunning given Bankman-Fried and his exchange — valued at $32 billion less than a year ago — were seen as saviors in the crypto sector's liquidity crisis this summer. He gave troubled crypto lender BlockFi a $250 million loan in June and attempted to bail out Voyager Digital.
Binance is highly unlikely to move forward with its proposed acquisition of FTX after reviewing the exchange's internal data and loan commitments, Coindesk reported Wednesday.
And in a memo to Binance employees Wednesday, CEO Changpeng Zhao warned they shouldn't see FTX's collapse as a good thing. "Regulators will scrutinize exchanges even more. Licenses around the globe will be harder to get," he said.
Longtime critic Roubini has torn into cryptocurrencies many times before, describing them as the biggest scam ever in financial history. He called out celebrity Kim Kardashian for promoting coins last month, having tweeted back in 2017 that bitcoin is "marketed to the clueless masses."