Krypto is too dependent on the Greater Fool Theory to be a desirable investment - featured

The former chairman of the Federal Reserve, Alan Greenspan, says that Krypto is "too dependent on the 'theory of the larger fool' in order to be a desirable investment". However, he found that the collapse of the crypto exchange FTX was "a pure fraud" and not the result of a characteristic that is inherent in crypto. He does not expect the FTX attachment to spread far beyond the cryptor room.

Alan Greenspan over crypto, ftx and US economy

The former chairman of the Federal Reserve, Alan Greenspan, shared his views on cryptocurrency, the collapsed crypto exchange FTX and the US economy in a Q&A at the end of the year that was published this week by Advisors Capital Management.

Greenspan served five terms as chairman of the Board of Governor of the Federal Reserve System. He was appointed chairman by four different US presidents. He came to Advisors Capital Management in September 2016 as an economic advisor of the wealth management company.

The former Fed chairman was asked to comment on the FTX core melt and whether he expected infection. "I do not expect the consequences of FTX to spread beyond the cryptocurrency/nft [non-fungable token] space," replied Greenspan and quoted "the information that has come to light so far". He emphasized:

The collapse of FTX was not the result of a lax risk management, inadequate accounting procedures or a characteristic that is inherent in crypto - it was pure fraud.

"Although FTX and similar companies have strengthened the marketing of their products in recent years, the lack of a noticeable widespread market reaction on FTX indicates that they are still quite concentrated in the hands of a relatively small sub -group of investors," said Greenspan.

"In addition, the differences that we observed after the technology bursts and the bursts of the real estate bubble have clearly shown that loan -driven financial bubbles cause far more contagation if they ultimately deflation," he said. "There seems to be no significant leverage for the cryptocurrency/NFT area at the moment, so I do not expect that the infection will spread very far beyond this specific asset class."

The former head of the Federal Reserve added:

In terms of the broader crypto universe, I consider the investment class as too dependent on the "theory of the larger fool" in order to be a desirable investment.

Greenspan also shared his view of the US economy and the struggle of the Federal Reserve against inflation. On the question of whether a recession is required to reduce inflation, as some economists suggested, he said:

A recession currently seems to be the most likely result.

However,

he does not believe that "a U -turn of the Fed, which is considerable enough to avoid at least a slight recession", is justified. "The wage increases and thus also employment have to be weakened even further so that a decline in inflation is more than temporary. So we may have a short time of calm on the inflation front, but I think it will be too late," concluded Greenspan.

Do you agree to former Fed chairman Alan Greenspan in relation to crypto and the US economy? Let us know in the comment area below.

Kevin Helms

As a student of Austrian economics, Kevin Bitcoin discovered in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economy and cryptography.

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