Portland News

Despite Crypto Growth, Paul Krugman Remains Critical of the Crypto Market; Calls It a Pyramid Scheme

Paul Krugman remains critical of crypto, labels it a "postmodern pyramid scheme"

The cryptocurrency market has grown significantly and become more popular over the past decade, but many remain skeptical of crypto assets, including economist Paul Krugman.

Paul Krugman has criticized cryptocurrencies for years and called them “the new subprime.” He also said that although the industry presents itself as cutting-edge and respectable, it has not yet developed products that can benefit the real economy.

Recently, Krugman said the cryptocurrency market has evolved into a “postmodern pyramid scheme,” adding that the slump investors are experiencing 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. 

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.

The crypto market capitalization has fallen to less than $900 billion, a significant drop from its November 2021 peak of $3 trillion.

The notable investor also referenced Fed Vice Chairman Lael Brainard’s speech last week. He (Brainard) said selling crypto deals addresses “serious vulnerabilities in the crypto financial system” as the prospect of decentralized currency has boosted the troubled crypto space by creating fertile ground for financial crimes. , including fraud and money laundering.

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 stepped in 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. ‘industry.

Krugman echoed his opinion, writing: “That’s very good advice. I hope the Fed and other policymakers take it.”

Opinions expressed by Portland News contributors are their own.