Crypto Headed For Collapse, Paul Krugman Warns
Economist and New York Times columnist Paul Krugman said in a piece that he believes strongly that the cryptocurrency industry is “headed for oblivion,” Alex Henderson reported for Alternet.
Photo Insert: When cryptocurrency exchanges themselves are in trouble, Krugman warns, it is a bad sign.
“Crypto reached its peak of public prominence last year, when Matt Damon’s ‘Fortune favors the brave’ commercial — sponsored by the Singapore-based exchange Crypto.com — first aired,” Krugman explains.
“At the time, Bitcoin, the most famous cryptocurrency, was selling for more than $60,000. Bitcoin is now trading below $17,000. So, people who bought after watching the Damon ad have lost more than 70 percent of their investment.”
The Bank for International Settlements (BIS) updated the figure, saying they all lost 75% of their investments and 46,000 of these investors have lost $1 billion to hackers and other conmen in 15 months.
Krugman notes that “falling prices” don’t necessarily “mean that cryptocurrencies are doomed,” pointing out that “people who bought stock in” Facebook’s parent company Meta “at its peak last year have lost around as much as investors in Bitcoin have.”
But when cryptocurrency exchanges themselves are in trouble, Krugman warns, it is a bad sign.
“More telling than prices has been the collapse of crypto institutions,” Krugman observes. “Most recently, FTX, one of the biggest crypto exchanges, filed for bankruptcy — and it appears that the people running it simply made off with billions of depositors’ money, probably using the funds in a failed effort to prop up Alameda Research, its sister firm.
The question we should ask is why institutions like FTX or Terra, the so-called stablecoin issuer that collapsed in May, were created in the first place.” Krugman adds that after the financial crash of September 2008, cryptocurrencies were hailed as a safe alternative to traditional “financial institutions.”
They have become financial institutions themselves that are unchecked and have no assets to back up the amount of cryptocurrency they are holding.