Paul Krugman and a disturbing question: “Is this the end of the crypto industry?”

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The Nobel Prize in Economics believes that market regulation, even if necessary, could ultimately sink the digital asset

Paul Krugman and a disturbing question: “Is this the end of the crypto industry?”

Paul Krugman Nobel Prize in Economics and columnist for The New York Times referred in his last work to the possible end of the cryptocurrency industry (Getty Images)

The economist Paul Krugmanbelieves that one of the most brilliant industries in recent years could be at the gates of its end. He raised it in his regular column in The New York Times with the headline “ Is this the end of the crypto industry? ”. For the Nobel Prize in Economics 2008, the sector should be regulated but even in that scenario it would not seem that it could survive the current collapse.

Events Recent events have made the need to regulate the crypto industry evident,” says Krugman He adds: “It grew from nothing to a market capitalization of $3 trillion a year ago, although most of that value has already evaporated. The problem is that it also seems likely that this industry will not survive regulation.”

Krugman recalls that the rage for this type of virtual currency had its peak peak in 2021 when Bitcoin, the most famous of them, reached 60 thousand dollars. Today, that price is around 17 thousand. The collapse was not exclusive to that denomination, but to all those that make up the particular digital wallets. In addition, it recalls a commercial that actor Matt Damon starred at the time for “People who bought cryptocurrency after seeing Damon's ad have lost more than 70 percent of their investment. In fact, just as most people who bought bitcoin did when the price was high, most people who invested in bitcoin have lost money so far”, says the professor at the prestigious Princeton University.

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More revealing than prices it has been the collapse of the crypto industry institutions”, explains Krugman. “The most recent, FTX, one of the biggest exchanges, announced bankruptcy and, it seems, its operators simply walked away with billions of dollars from investors, funds that they may have used to try and unsuccessfully prop up to Alameda Research, a company belonging to the same group”.

In its beginnings, the academic points out, “the idea was that having electronic tokens whose validity was established with techniques derived from cryptography would give people the possibility of not using financial institutions. To transfer funds to someone else, it would be enough to send them a number -a key-, without having to trust Citigroup or Santander to record the transaction. However, the mystery for Krugman was in knowing “exactly why anyone other than a criminal would want to do something like this”.

Paul Krugman and a disturbing question: “Is this the end of the crypto industry?”

FILE PHOTO: FTX founder Sam Bankman-Fried poses for a photo, at an unspecified location on July 5, 2022 (Reuters)

In any case, the idea of ​​a monetary system that was not based on trust in financial institutions was interesting and arguably worth trying to implement”, says Krugman. But for the renowned economist, “after 14 years, cryptocurrencies have made almost no progress in their goal of adopting the traditional role of money.” He says: “They are too peculiar to be used in ordinary transactions. Its value is very unstable. In fact, relatively few investors are even willing to save their cryptographic keys, as the risk of losing them, for example, if they are stored on a hard drive that ends up in a landfill, is very great.”

But there is something contradictory, in addition, in the current industry that he said was coming to replace the already traditional one. “In its evolution, the cryptocurrency ecosystem has become exactly what it was supposed to replace: a system of financial intermediaries whose ability to operate depends on the trust they project.” That was FTX and Coinbase. “These exchange houses are nothing less than -attention- financial institutions, whose ability to attract investors depends on nothing less than – again, mind you – the trust of those investors.”

“Worse still, trust in conventional financial institutions is based on part in the validation of 'Uncle Sam': the government supervises the banks, regulates the risks they can take and guarantees many deposits”, underlines Krugman and clarifies: “on the other hand, cryptocurrencies they operate with virtually no supervision. For this reason, investors depend on the honesty and competence of businessmen.”

Finally, the Nobel Prize Winner in Economics says: “As to the supporters they love to remind us, previous predictions about the imminent failure of cryptocurrencies have been wrong. In fact, just because bitcoins and their rival currencies can't really be used as money doesn't mean they have no value; after all, the same could be said of gold.”

However, he concludes: “But if the government finally decides to regulate the crypto industry firms, which, among other things, will would prevent them from promising unobtainable returns, it is hard to see any advantage they might offer compared to ordinary banks. Even if the value of Bitcoin doesn't fall to zero (which it still could), there is every reason to hope that the crypto industry, which looked so imposing just a few months ago, will end up in oblivion.”< /p>