After the earthquake caused by the collapse of the UST, a ” stablecoin based on a Ponzi scheme, several economists commented on the crash. One of them, Paul Krugman, Nobel laureate in economics, does not spare his criticisms of the ecosystem and once again considers that crypto has no fundamental value.
What is Crypto?
Paul Krugman believes that cryptocurrencies are very special forms of digital assets. The main difference is based on the redefining the notion of ownership. When you have 1,000 euros in a bank account, you own it because the law says so and the bank respects this legal claim by requiring that I am the owner. The State which holds the police monopoly is therefore the final arbiter which allows the system to operate.
Conversely, ownership of a crypto asset is established by the block chain which is a public ledger that records all transactions within a network of users. In the context of BTC, the protocol not only removes banks from the equation, but especially the state.
BTC, a bad refuge against inflation?
Paul Krugman begins by comparing the evolution of the consumer price index, which measures the evolution of an average basket of goods and services in dollars and in BTC. In dollars, prices increased on average by 4% over the last six months. In bitcoin, more than 120%thus representing annualized price inflation of 380%.
The Nobel Prize therefore affirms that BTC is not (yet?) a good asset to protect against inflation. One can hardly refute his conclusion, at least in the West.
Crypto, especially marketing?
Originally, BTC attracted a clique of libertarians fascinated by protocol technology, then gradually the bull markets attracted new investors motivated by quick profits. Celebrities and influencers have actively contributed to this entry of new entrants: Elon Musk, Matt Damon, Mike Tyson or Kim Kardashian.
Political figures like New York Mayor Eric Adams Where Republican Senate candidate Josh Mandel all praised the BTC. The latter even intends to transform Ohio into a state ” pro-God, pro-Family, pro-Bitcoin “. Krugman finds it unfortunate that the poorest are also the most likely to be influenced by these celebrities. And therefore lose money.
Different investors
Paul Krugman notes that crypto investors are very different from stock market investorss. These would be mostly white and would have followed a university course. Conversely, citing a NORC study, 44% of crypto investors would not be white and 55% would not have a university degree.
No core values?
The Nobel laureate sees no fundamental difference between cryptocurrencies and payment systems like Venmo or PayPal. He nevertheless recognizes utility on the black market through more or less anonymous crypto. Cryptos would therefore not play no role in economic transactions and their price would currently be based only on speculation and FOMO (fear of missing out).
Bitcoin would not need additional time to develop according to Paul Krugman. He considers that it is already old technology, as old as the iPad and who did not know how to convert the test. The inability to easily pay for groceries in BTC would prove this failure. Would its introduction to El Salvador also be a failure stinging due to low utilization.
Crypto crash, the new subprimes?
Paul Krugman draws a parallel between the subprime crisis and the crypto market. The risks associated with cryptos would weigh disproportionately on the misinformed people. It is however crypto unlikely to escalate into economic crisis overall due to the small size of the ecosystem relative to the financial industry.
He compares the influence of celebrities like Musk to that of influencers who encouraged subprime mortgages. At the time, it was about democratizing access from the owner to minority groups to the working class.
Nobel laureate Paul Krugman is not his first criticism of crypto and bitcoin (BTC). The UST crash only reinforces his vision: crypto has no fundamental value, it is bad for the environment and the poor will be the first victims. It is good to remember that this economist said in 1998 that the Internet would have no more impact on the world than the fax…
Source 1 : The New York Times ; The New York Times
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Yanis A
Bitcoin changes everything! Coming from a financial background, I am passionate about everything about this technology. Every day, I try to enrich my knowledge of this revolution which will allow humanity to advance in its conquest of freedom.