The crypto market has become a “postmodern pyramid scheme”

• Paul Krugman characterized the crypto market as a “postmodern pyramid scheme” in a New York Times op-ed.
• “The industry lured investors in with a combination of technobabble and libertarian derp,” he wrote.
• His comments come after an astonishing crash that wiped out $ 2 trillion in crypto market value.

The cryptocurrency market has become a “postmodern pyramid scheme,” said top economist Paul Krugman in a New York Times statement – and the spectacular crash investors saw this year as an opportunity for federal regulation.

The vocal cryptocurrency critic, who previously called the digital resource the “new subprime”, said that the industry has not yet developed products that are useful in the real economy and has instead marketed itself with success as both groundbreaking and respectable.

“As I see it, crypto evolved into a kind of postmodern pyramid scheme,” Krugman wrote. “The industry lured investors in with a combination of technobabble and libertarian derp; it used some of that cash flow to buy the illusion of respectability, which brought in even more investors. And for a while, even though the risk multiplied, it actually became too big. to regulate. “

His latest volley against crypto comes after stablecoin Terra and sister token Luna plunged in May, resulting in a domino crash of crypto companies that stopped customer withdrawals or declared bankruptcy. The total crypto

market value

has since collapsed to less than $ 900 billion from a peak of $ 3 trillion in November last year.

Krugman also noted last week’s speech by Fed Deputy Lael Brainard, who said recent cryptocurrency sales shed light on “serious vulnerabilities in the cryptocurrency system”, as the call for a decentralized currency often made room for a scam. , money laundering and other economic crime.

In the meantime, the payment apps Venmo and

Cash App

allow transactions with digital currency. And top institutions offer courses in maneuvering yourself around the blockchain, including Princeton, Harvard and MIT.

“Why did these ordinary institutions and people give cover to what Brainard made clear, a very dubious industry?” in Krugman.

But this year’s cryptocurrency could be a golden opportunity for regulation, Krugman said. So far, the federal government has taken some early steps. In March, President Joe Biden signed an executive order on cryptocurrencies to reconcile US government oversight. And in June, two senators presented a bill that sets the framework for regulation.

Although Brainard’s speech acknowledged that the cryptocurrency was still growing, it was not so large yet that it damaged the existing financial system.

This means that there is no time like now to regulate the industry, said Brainard, before crypto threatens to overthrow the economy itself.

“It’s very good advice. I hope the Fed and other decision-makers take it,” Krugman wrote.