Nobel Laureate Paul Krugman Likens Crypto Market to Subprime Mortgage Crash — Warns Regulators Are Making the Same Mistake
Nobel Prize-winning economist Paul Krugman sees parallels between the crypto market and the subprime mortgage crash. “There’s growing evidence that the risks of crypto are falling disproportionately on people who don’t know what they are getting into and are poorly positioned to handle the downside,” he stressed. Nobel Laureate Paul Krugman Warns About Crypto Crashing Like Subprime Mortgage
Nobel laureate Paul Krugman warned about cryptocurrency investing in an opinion piece he authored in the New York Times, published Thursday. Krugman won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2008 “for his analysis of trade patterns and location of economic activity,” the Nobel Prize website shows.
The Nobel Prize winner began by acknowledging that “crypto has become a pretty big asset class,” noting that the market value of all cryptocurrencies reached almost $3 trillion last fall. He added that the prices of cryptocurrencies have crashed, “wiping out around $1.3 trillion in market capitalization.”
However, Krugman believes that “crypto doesn’t threaten the financial system,” citing that “the numbers aren’t big enough to do that.”
Nonetheless, the economist warned that “There are disturbing echoes of the subprime crash 15 years ago,” elaborating: I’m seeing uncomfortable parallels with the subprime crisis of the 2000s … There’s growing evidence that the risks of crypto are falling disproportionately on people who don’t know what they are getting into and are poorly positioned to handle the downside.
Krugman explained that “Investors in crypto seem to be different from investors in other risky assets, like stocks, who consist disproportionately of affluent, college-educated whites.” He cited a survey by the research organization NORC, stating that 44% of crypto investors are nonwhite and 55% don’t have a college degree.
While NORC says that “cryptocurrencies are opening up investing opportunities for more diverse investors,” Krugman pointed out that “subprime mortgage lending was similarly celebrated … it was hailed as a way to open up the benefits of homeownership to previously excluded groups.”
Krugman continued: “cryptocurrencies, with their huge price fluctuations seemingly unrelated to fundamentals, are about as risky as an asset class can get.”
Noting that skeptics say cryptocurrencies are only good for “money laundering and tax evasion,” with some warning that bitcoin is a bubble, he said that “it’s OK for investors to bet against the skeptics.”
However, the Nobel laureate cautioned: “But these investors should be people who are both well equipped to make that judgment and financially secure enough to bear the losses if it turns out that the skeptics are right.” He concluded: Unfortunately, that’s not what is happening. And if you ask me, regulators have made the same mistake they made on subprime: They failed to protect the public against financial products nobody understood, and many vulnerable families may end up paying the price. Tags in this story Nobel Laureate, Nobel laureate Paul Krugman, Paul Krugman bitcoin, Paul Krugman crypto, Paul Krugman cryptocurrency, Paul Krugman subprime mortgage, subprime mortgage crash crypto, subprime mortgage crypto.
What do you think about Nobel laureate Paul Krugman’s comments? Let us know in the comments section below. Kevin Helms
A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography. Visa Partners With Over 65 Crypto Platforms — Crypto-Linked Card Usage Soars Despite Price Volatility FEATURED | 3 hours ago Vitalik Buterin to Use $100 Million From Crypto Relief"s SHIB Funds to Accelerate Covid Relief Efforts FEATURED | 5 hours ago
Image Credits: Shutterstock, Pixabay, Wiki Commons Previous articleRobinhood to Launch Crypto Trading Internationally — Sees ‘Immense Potential’ in Crypto Economy Next articleVitalik Buterin to Use $100 Million From Crypto Relief’s SHIB Funds to Accelerate Covid Relief Efforts Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article. Read disclaimerShow comments More Popular NewsIn Case You Missed ItIndian Government Needs More Time to Finalize Crypto Bill: Report
Indian government officials reportedly said that India"s cryptocurrency bill will require more time because crypto is a complex subject. The bill is therefore unlikely to be introduced in the upcoming session of parliament. The government reportedly wants to hold more ... read more.Tom Brady"s Autograph NFT Agency Gets $170 Million in Series B Funding Round Indonesian Religious Organization Issues Decree Forbidding Use of Crypto by Country"s Muslim Population NYC Mayor Eric Adams Converts First Paycheck to Bitcoin and Ether via Coinbase Bitcoin Price Slips Below $36K, BTC Dominance Increases, Billions Leave Crypto Economy