Nobel laureate and economist Paul Krugman argued that crypto and digital assets as a whole were dangerous due to the volatility of the market, likening it to the subprime mortgage crisis during the late 2000s.
On Thursday, Krugman said in an exclusive opinion piece for the New York Times that he was "seeing uncomfortable parallels" between cryptocurrency and the U.S. subprime crash. The economist noted that the crisis brought the whole housing market to its knees and resulted in the 2007 to 2008 global financial crisis.
Crypto Market Crisis?
In the opinion piece, the Nobel Prize winner said that he saw disturbing similarities between the rise of digital assets and the subprime crash that occurred more than a decade ago. At the time, the crisis was primarily the result of banks making loans out to people of higher risk.
The situation came at a time when interest rates were low and house prices were continuously increasing. However, when the market became saturated, homeowners found themselves in a situation of negative equity and were unable to repay their loans. This resulted in hefty losses for lenders overall, CNBC reported.
Krugman cited the recent slide that resulted in roughly $1 trillion in market value being lost due to cryptocurrency. He questioned who were the ones that were most affected by the crash and wondered what it could do to the economy as a whole.
While the economist said that he did not believe that crypto would cause a wider economic crisis, he argued that a crypto bear market could disproportionately affect the more vulnerable people in society. He referenced research that showed about 55$ of crypto investors do not have a college degree and anecdotal evidence that it was more popular among the working class.
Being a longtime crypto skeptic, Krugman has repeatedly criticized bitcoin even as early as 2013 when he penned a piece for the New York Times that was titled "Bitcoin Is Evil." He previously claimed that the cryptocurrency had no legitimate uses and no intrinsic value, Coindesk reported.
Similar Situation
Krugman referenced the time that the subprime mortgage lending process was similarly praised and likened it to how people were viewing cryptocurrency today. He said that the crisis was initially hailed as a way to open up the benefits of homeownership to previously excluded groups.
However, many borrowers at the time of the subprime mortgage crisis did not understand what they were getting themselves into. Krugman argued that while he did not believe crypto will cause a similarly devastating effect on the economy, it was still dangerous.
The economist argued that regulators had already made the same mistake with crypto as previously seen with what was done with the subprime mortgage process. Krugman noted that they failed to protect the public against financial products that nobody understood. The Nobel Prize winner added that there were many vulnerable families in the country and in the world that are at high risk of losing a lot of their finances in the crypto market if it continues down its path, Markets Insider reported.
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