Bitcoin bubble

Why These Leading Economists Loathe Crypto

By NYC Adriana | Crypto Portal | 2 May 2021

Since the birth of Bitcoin in 2008, there has been no shortage of skeptical economists weighing in on the future of the cryptocurrency. Within the crypto world, their commentary is usually met with a gleeful disdain. But are we right to ignore them entirely?

Of course, predicting the future is hard. We live in a complex world with infinite moving parts. Looking at the following comments of leading economists, there is some worthwhile caution about a blind embrace of cryptocurrency. What they seem to miss, however, is the value of blockchain technology that underpins the wider project. Already, it seems, the powers of the old financial world are waking up to this value. In fact, with the likes of China, the EU, the UK, and Russia working on or investigating central bank digital currencies, the train may have already left the station.

Nobel Prize Winner Paul Krugman

“Their value depends entirely on self-fulling expectations”

Paul Krugman Flickr Creative Commons

Paul Krugman is perhaps the most famous critic of cryptocurrency. It’s worth noting that he has made wildly incorrect prognoses before, saying in 1998 that within a decade it would be clear that “the internet’s impact on the economy has been no greater than the fax machine’s.”

In this 2018 New York Times column, he doubled down on his cryptoskepticism, saying that the need for resource-intensive blockchain mining sets the monetary system back 300 years to pre-fiat times when resource-intensive gold and silver coins held together economies. He went on to decry cryptos' lack of real-world use.

"Cryptocurrencies, by contrast [to fiat and gold], have no backstop, no tether to reality. Their value depends entirely on self-fulfilling expectations—which means that total collapse is a real possibility. If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless. Will that happen? I think it’s more likely than not, partly because of the gap between the messianic rhetoric of crypto and the much more mundane real possibilities."

Former IMF Chief Kenneth Rogoff

"Ultimately this bubble will pop"

Harvard professor and former IMF chief economist Kenneth Rogoff is another longstanding skeptic, once reckoning, "Betting on crytpocurrencies gaining widespread use is a bet on dystopia—a breakdown of governments worldwide." In February 2021 he responded to the rise of Bitcoin and recent bullrun, saying:

“Zero interest rates can produce a lot of funny asset valuations. So that is certainly part of it... Clearly, there are a lot of wealthy people and well-known financiers, often very senior, who publicly said they are investing in it [Bitcoin] and that has given confidence... But I have to say, [government] regulation is in its early innings. If there is no final use case for Bitcoins, [and] I don’t think it’s going to be, ultimately this bubble will pop. But it could take a decade.”

Nobel Prize Winner Robert Shiller

"Practically no one, outside of computer science departments, can explain how cryptocurrencies work"

Robert Shiller Flickr Creative Commons

In this May 2018 piece, Nobel winner and Yale professor Robert Shiller derided cryptocurrencies as “a statement of faith in a new community of entrepreneurial cosmopolitans who hold themselves above national governments.”

“As in the past, the public’s fascination with cryptocurrencies is tied to a sort of mystery, like the mystery of the value of money itself, consisting in the new money’s connection to advanced science. Practically no one, outside of computer science departments, can explain how cryptocurrencies work. That mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a compelling story may not be enough.”

Former Clinton Advisor Joseph Stiglitz

"We should shut down the cryptocurrencies"

Nobel winner and former Clinton advisor Joseph Stiglitz has said that Bitcoin serves not socially useful function and is a tool for wrongdoing.

“We know about the role of real estate and money laundering. We know from the Panama Papers the extent of this laundering. We know from research in recent years, for instance the work of Gabriel Zucman, the large percentage of global wealth that is held in these dark havens.

We have a very good currency. So far, the currency has been run in a very stable. There is no need for anybody to go to a cryptocurrency... In our standard courses in economics, we talk about the attributes of a good currency and the US dollar has all those attributes. Cryptocurrencies do not have those attributes… I actually think we should shut down the cryptocurrencies."

So will these economists be left in the dust? With new scaling solutions for crypto, a wider embrace among investors, and real-world usage rolling out, it seems that they will have plenty more to opine about in years to come.

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NYC Adriana
NYC Adriana

Writer, editor and crypto enthusiast from New York City.

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