Although the cryptocurrency market has grown and become more popular over the past decade, many remain skeptical of crypto assets, including economist Paul Krugman.
Paul Krugman has criticized cryptocurrencies for years, calling them “the new subprime.” However, he also said that while the industry presents itself as cutting-edge and respectable, it has not yet developed products for the benefit of the real economy.
Recently, Krugman said the cryptocurrency market has evolved into a “postmodern pyramid scheme,” adding that the collapse experienced by investors this year could open the door to federal regulation.
“The way I see it, crypto evolved into a sort of postmodern pyramid scheme,” wrote Krugman. “The industry lured investors in with a combination of technobabble and libertarian derp; it used some of that cash flow to buy the illusion of respectability, which brought in even more investors.”
“And for a while, even as the risks multiplied, it became, in effect, too big to regulate,” he added.
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Paul Krugman’s comments follow the collapse of stablecoin Terra and sister token Luna in May, which led to a violent collapse by crypto companies that either suspended customer payments or filed for bankruptcy.
Overall, the crypto market capitalization has fallen to less than $900 billion, a significant drop from its peak of $3 trillion in November 2021.
The notable investor also referenced Fed Vice Chairman Lael Brainard’s speech last week. He (Brainard) said the crypto selloff addressed “serious vulnerabilities in the crypto financial system” as the prospect of a decentralized currency was boosting the troubled crypto Raum by creating fertile ground for fraud and money laundering, among other financial crimes.
As cryptocurrency became more mainstream, other companies began to adapt – payment apps like Venmo and Cash App began to facilitate digital currency transactions.
Meanwhile, institutions like Princeton, Harvard, and MIT have started offering courses to help people navigate blockchain. “Why are these mainstream institutions and people lending cover to what as Brainard made clear, a highly dubious industry?” Krugmann asked.
Either way, Paul Krugman thinks the 2022 crypto crashes could present a regulatory opportunity.
The federal government took action when President Joe Biden signed an executive order on cryptocurrencies in March to unify government control. A legislative proposal to create a legal framework was presented in June.
Although Brainard’s speech acknowledged that cryptocurrency is still a growing space, it did not pose a potential threat to the existing financial system. As such, he believes now is the time to regulate the industry.
Krugman echoed his sentiments, writing, “That’s very good advice. I hope the Fed and other policymakers take it.”
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