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Nobel Prize-winning economist Paul Krugman said he sees “uncomfortable
parallels” between the volatile cryptocurrency market and the subprime mortgage
crisis of the late 2000s.
In an opinion piece for The New York Times, published on
Thursday, Krugman said, “there are disturbing echoes of the subprime crash 15
years ago,” which brought the U.S. housing market to its knees and triggered
the 2007-2008 global financial crisis.
Citing the recent slide that wiped out over $1 trillion from
the crypto market, Krugman wrote, “Who is being hurt by this crash, and what
might it do to the economy?
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Krugman, a long-time crypto skeptic, last year, in a string
of tweets, mocked cryptocurrency believers, who think Bitcoin, which has neither
legitimate uses nor any intrinsic value, is a “technologically sophisticated
way to protect yourself from the inevitable collapse of fiat money.”
Risks in crypto
The subprime crisis began when the U.S. banks started giving
out loans to higher-risk people when the interest rates were low and house
prices were soaring.
As the market became saturated, homeowners found themselves
in negative equity, defaulting on loans, resulting in hefty losses for lenders.
Krugman expressed his concerns that crypto investors don’t
truly understand the risks involved and are exposed to speculative financial
products like the 2007 crisis.
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of $14 billion in 2021, mostly due to DeFi scams and thefts
“Many borrowers didn’t understand what they were getting
into,” he wrote. “And cryptocurrencies, with their huge price fluctuations
seemingly unrelated to fundamentals, are about as risky as an asset class can
get.”
“There’s growing evidence that the risks of crypto are
falling disproportionately on people who don’t know what they are getting into
and are poorly positioned to handle the downside.”
Crypto market bloodbath
The broader crypto market has witnessed a free fall since
starting of this year. from the market over the last weekend alone.