Nobel laureate Paul Krugman compares crypto market with subprime mortgage crash-warns regulatory authorities to make the same mistake-selected Bitcoin messages
Nobel laureate Paul Krugman compares crypto market with subprime mortgage crash-warns regulatory authorities to make the same mistake-selected Bitcoin messages
The Nobel Prize winner Paul Krugman sees parallels between the cryptomarkt and the subprime mortgage crash. "There is more and more evidence that the risks of crypto are disproportionately on people who do not know what they are involved in and are poorly positioned to deal with the disadvantages," he emphasized.
Nobel laureate Paul Krugman warns of crypto crashes such as subprime mortgages
The Nobel Prize winner Paul Krugman warned of cryptocurrency investments in an opinion contribution that he published in the New York Times. Krugman received the SVERIGE Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2008 "for his analysis of trade patterns and locations of economic activity", as the Nobel Prize website shows.
The Nobel laureate initially recognized that "crypto has become a rather large investment class", and found that the market value of all cryptocurrencies reached almost $ 3 trillion last autumn. He added that the prices for cryptocurrencies had crashed and "outdated around $ 1.3 trillion to market capitalization".
Krugman, however, believes that "crypto does not threaten the financial system" and states that "the numbers are not big enough for it".
Nonetheless, the economist warned that "there are troubling echoes of the subprime crash 15 years ago" and explained:
I see uncomfortable parallels to the subprime crisis of the 2000 ... There is more and more evidence that the risks of crypto disproportionately on people who do not know what they are getting into and poorly positioned to finish with the downside.
Krugman said: "Investors in Krypto seem to differentiate from investors to other risky assets such as stocks that consist disproportionately from wealthy whites with a university degree." He quoted a survey by the NORC research organization, which says that 44 % of crypto investors are not white and 55 % have no university degree.
While Norc says that "cryptocurrencies open up investment opportunities for more diverse investors", Krugman pointed out that "subprime mortgage loans were celebrated similarly ... they were celebrated as a way to open the advantages of residential property for previously excluded groups".
Krugman continued: "Cryptocurrencies with their enormous price fluctuations, which apparently have nothing to do with fundamental data, are roughly as risky as an investment class can only be."
He found that skeptics say that cryptocurrencies are only good for "money laundering and tax evasion", and warned that Bitcoin was a bubble and said that "it is okay if investors bet against the skeptics".
The Nobel Prize winner warned: "But these investors should be people who are both well equipped to make this judgment and are financially secure enough to bear the losses if it turns out that the skeptics are right." He closed:
Unfortunately this is not the case. And if you ask me, the regulatory authorities have made the same mistake as with Subprime: You have failed to protect the public from financial products that nobody understands, and many endangered families could ultimately pay the price.
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