The vocal crypto critic, who has previously referred to the digital asset as “the new subprime capital,” said the industry has not yet developed products that are useful in the real economy and is instead successfully positioning itself as cutting edge and respectable.
“In my opinion, the cryptocurrency has become a kind of post-modern pyramid scheme,” Krugman wrote. “The industry has been luring investors with a combination of tech chatter and libertarian madness; she used some of that cash flow to sell an illusion of respectability, which attracted even more investors. Now the crypto market has become too big and needs to be regulated.”
His latest volley against cryptocurrencies came after stablecoin Terra and child token Luna tumbled in May, leading to the collapse of crypto companies that suspended customer withdrawals or filed for bankruptcy. The total market capitalization of cryptocurrencies has since collapsed to less than $900 billion from a peak of $3 trillion last November.
Krugman also noted a speech last week by Fed Vice Chair Laela Brainard, who said the recent crypto sell-off shed light on “serious vulnerabilities in the crypto-currency financial system” as the appeal of a decentralized currency has often made the crypto space a way to cover up fraud, money laundering and other financial crimes. .
Meanwhile, the payment apps Venmo and Cash App allow you to make transactions with digital currency. And top schools offer courses on blockchain applications, including Princeton, Harvard, and the Massachusetts Institute of Technology.
„Why were these major institutions and people covering up for what Brainard made clear is a highly dubious industry?” Krugman said.
But the collapse of cryptocurrencies this year could be a great opportunity for regulation, the Nobel laureate in economics added. So far, the federal government has taken some first steps. In March, President Joe Biden signed an executive order on cryptocurrencies to consolidate control of the US government. And in June, two senators introduced a bill establishing a framework for regulation.
Although Brainard acknowledged in her speech that the use of cryptocurrencies is on the rise, it is not yet large enough to harm the existing financial system.
According to Brainard, this means that now is the right time to regulate the industry before the cryptocurrency threatens to bring down the economy itself.
“This is very good advice. I hope the Fed and other politicians accept it,” Krugman wrote.