People are losing way too much money.
Paul Krugman knows a thing or two about economics, and his opinion on who is losing money in crypto is quite alarming.
“Crypto doesn’t threaten the financial system – the numbers aren’t big enough to do that,” Krugman wrote in his latest op-ed for the New York Times. “But there is growing evidence that the risks of crypto fall disproportionately on people who don’t know what they’re getting into and are ill-placed to handle the downsides.”
Krugman is Distinguished Professor at the Luxembourg Income Study Center at the City University of New York and Emeritus Professor at the Princeton School of Public and International Affairs. He even won the Nobel Prize in Economics for his work on international trade theory in 2008.
All told, Krugman is a guy who intimately understands the Great Recession and what kinds of markets are causing the most problems. This whole experience should make your ears prick up, because Krugman is essentially saying that the current crypto crisis and tank token values are really similar to the 2000s subprime mortgage slump, which gutted the economy for years.
And now ?
You might be wondering what the subprime mortgage crisis was, and a simple definition can help us better understand Krugman’s point of view. In the 2000s, lenders gave mortgages – lots of them – to people who really couldn’t afford them. The owners didn’t understand what they were getting into, and it snowballed into a financial crisis that affected the entire United States.
While Krugman doesn’t seem to think we’re headed for another recession because of crypto, he points out that NFTs and other blockchain technologies seem to be particularly popular investments with working class and marginalized groups.
That so many NFTs turn out to be scams, or the ease with which less experienced investors can lose thousands of real dollars, does indeed make crypto feel a bit like the 2000s. People who can’t afford to lose lots of money are jumping on a trend that could quickly deplete their resources.
Krugman says it’s okay for investors with the resources to hold steady to bet against crypto-skeptics, but still calls for some sort of safety net to protect ordinary people from disaster.
“If you ask me, regulators made the same mistake they made on subprime: they failed to protect the public from financial products no one understood, and many vulnerable families could end up pay the price,” he concluded.
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