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New York Times opinion columnist Paul Krugman labeled cryptocurrencies a ‘scam’ in an op-ed published Monday. The piece, titled “From the Big Short to the Big Scam,” compared cryptocurrencies to the 2008 housing bubble that contributed to the Great Recession.
“Remember ‘The Big Short’?” asked Krugman. “The 2010 book by Michael Lewis, made into a 2015 film, told the story of the 2008 global financial crisis by following a handful of investors who were willing to bet on the unthinkable — the proposition that the huge rise in housing prices in the years before the crisis was a bubble, and that many of the seemingly sophisticated financial instruments that helped inflate housing would eventually be revealed as worthless junk.”
“Even though there was clear evidence that housing prices were out of line, it was hard to believe they could be that far out of line,” he wrote.
“It just didn’t seem plausible that markets, and the conventional wisdom saying that markets were OK, could be that wrong,” Krugman recalled. “But they were. Which brings us to the current state of crypto.”
Krugman noted that, according to the Federal Trade Commission, crypto is used for fraud and questioned its real world usefulness.
“Last week the Federal Trade Commission reported that ‘cryptocurrency is quickly becoming the payment of choice for many scammers,’ accounting for ‘about one of every four dollars reported lost to fraud,’” he reported. “Given how small a role cryptocurrency plays in ordinary transactions, that’s impressive,” he continued.
He recalled being at meetings regarding cryptocurrency in which “skeptics” raised concerns about the product’s real purpose and what they “do that can’t be done more easily with more conventional means of payment.”
“They also ask why, if crypto is the future, Bitcoin — which was introduced in 2009(!) — has yet to find any significant real-world uses,” he continued and wondered if there are “legitimate applications” of crypto besides illicit activities.
“Yet suggesting that crypto makes no sense runs up against the incredulity factor,” Krugman acknowledged.
“It sounds extreme and implausible to suggest that an asset class that has become so large, whose promoters have acquired so much political influence, could lack any real value — that it is a house built not on sand, but on nothing at all,” he wrote.
“But I remember the housing bubble and the subprime crisis. And if you ask me, it looks as if we’ve gone from the Big Short to the Big Scam,” he concluded.
President Joe Biden has ordered a broad review of cryptocurrencies and study on the issuance of a central bank digital currency, which would be run through the Federal Reserve. Central bank digital currencies are not cryptocurrencies but are being pursued by countries, such as China, partly in response to them.
Critics of Biden’s executive order argue that a digital dollar would lead to a loss of freedom because it would empower the government to monitor every transaction, more easily freeze people’s assets, and establish a social credit system.