People are losing way too much money.
Educated Guess
Paul Krugman knows a thing or two about the economy, and his opinion about who is losing money in crypto is pretty alarming.
"Crypto doesn’t threaten the financial system — the numbers aren’t big enough to do that," Krugman wrote in his latest op-ed for the New York Times. "But 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."
Krugman is a distinguished professor at the Luxembourg Income Study Center at the City University of New York and professor emeritus at the Princeton School of Public and International Affairs. He even won the Nobel Memorial Prize in Economic Sciences for his work on international trade theory in 2008.
All told, Krugman is a guy who intimately understands the Great Recession and what kinds of markets cause the most trouble. All this experience should make your ears perk up, because Krugman basically declares the current crypto crisis and tanking token values to be really similar to the subprime drop of the 2000s, which eviscerated the economy for years.
The What Now?
You might be wondering what the subprime mortgage crisis was, and a simple definition can help us better understand Krugman's point. In the 2000s lenders gave out mortgages — a lot of them — to people who really couldn't afford them. Homeowners didn't understand what they were getting into, and it snowballed into a financial crisis that affected the entire US.
While Krugman doesn't seem to think we're headed for another recession because of crypto, he does point out that NFTs and other blockchain tech seem to be particularly popular investments with the working class and marginalized groups.
That so many NFTs turn out to be scams, or the ease with which less experience investors can lose thousands of real dollars, indeed make crypto feel a bit like the 2000s. People who can't afford to lose a lot of money are hopping on board a trend that could drain their resources quickly.
Forward March
Krugman says it's okay for investors with the resources to remain stable to bet against crypto skeptics, but still calls for some kind of safety net to protect everyday people from disaster.
"If you ask me, regulators have made the same mistake they made on subprime: They failed to protect the public against financial products nobody understood, and many vulnerable families may end up paying the price," he concluded.
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