Krugman sees the new subprime in cryptocurrencies: “Vulnerable families will pay the price”

Cryptocurrencies have been under constant scrutiny and criticism for years. The last to warn of its danger is Paul Krugman, Nobel Prize in Economics in 2008 and popularizer, who sees parallels between what is happening in the cryptocurrency market and what happened more than a decade ago with the mortgage crisis that led to the global financial crisis.

In his last article for The New York Times, Krugman focuses on those who may be the biggest losers in this hypothetical bubble: the most vulnerable. Thus, the columnist considers that people from the most disadvantaged classes are investing in “financial products that nobody understands” and that they will be the ones who “could end up paying the price” if the cryptocurrency market collapses.

In this sense, he underlines that studies show that those who invest in cryptocurrencies are different from those who invest in other “risky assets, such as stocks, which are disproportionately wealthy whites with university education.” On the contrary, in the case of cryptos, 44% are non-white and 55% do not have university studies, according to data from the NORC research center.

For this reason, although Krugman rules out that the current capitalization of cryptocurrencies – currently 1.7 trillion dollars – is large enough to sink the world economy in the event of a crash, he does believe that those who have invested their savings there letting themselves be carried away by the quick gains of others and not knowing well what the risks involved can be deeply damaged.

In fact, it should be remembered that in just a few weeks several of the main cryptocurrencies have fallen by 50% from their all-time highs, as has been the case with bitcoin. “Perhaps they will recover and grow to new highs, as they have in the past. For now, however, prices are way down. Who are the losers?” he asks.

Krugman also hints that they have become merely speculative assets, since there are simpler and more efficient ways to acquire goods digitally. He turns to examples such as El Salvador and the state’s bid for bitcoin, where “residents who try to use the currency face huge transaction fees.”

“Cryptos have become a huge asset class despite the fact that no one can clearly explain what their legitimate purpose is,” summarizes the Nobel Prize in Economics, who blames the regulators for not protecting the public against these financial products and the consequences that the investment may bring.