Economist Paul Krugman Compares Crypto to Subprime Crisis

On January 27, the Nobel-Prize-winning economist Paul Krugman published an op-ed in the New York Times. Krugman, who has been openly skeptical of cryptocurrencies like Bitcoin in the past, said that he sees “uncomfortable” parallels between the crypto market and the subprime mortgage crisis that caused the 2008 financial crash.

Krugman noted that:

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.

Paul Krugman, New York Times Op-Ed January 27 2022

In particular, he cited research by NORC at the University of Chicago which found that the majority (55%) of US crypto investors don’t have a college degree. This might be due to the fact that there are many younger investors in cryptocurrency, perhaps who have not yet completed their degrees. (It also could be argued that unless you have a college degree in cryptography, computer science, or something adjacent, this is completely irrelevant anyway – when did someone who had their head stuck in an art history book for three years constitute a more “sophisticated investor”). However, Krugman thinks that this statistic may confirm anecdotal evidence that crypto investing is “remarkably popular” among minorities and the working class (heaven forbid!).

Crypto has become a huge asset class even though nobody can clearly explain what legitimate purpose it’s for.

Paul Krugman

Krugman on the Utility of Cryptocurrency

As well as opining that crypto investors are unsophisticated, Krugman also took a swipe at crypto itself.

Skeptics [] argue that crypto ends up being an awkward, expensive way to do things you could have done more easily in other ways, which is why cryptocurrencies still have few legal applications 13 years after Bitcoin was introduced. The response, in my experience, tends to take the form of incomprehensible word salad.

Paul Krugman

Of course, the only cryptocurrency mentioned in the entire article is Bitcoin.

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Again, like many others, Krugman recites the hackneyed idea that crypto is primarily used for illicit activities and uses Bitcoin as a synecdoche for all other cryptocurrencies. Anyone familiar with the space could attest that blockchain technology has a myriad of “legal” applications and not all blockchains are “awkward” and “expensive”.

Perhaps Professor Krugman should take a few hours to research the practical applications of cryptocurrency and blockchain technology. Isn’t that what a sophisticated investor would do?