The Chinese government threatened to crack down on virtual currency mining on Friday (21)! The price of Bitcoin plunged again by more than 11% to $36,922.9. Paul Krugman, a Nobel Prize winning economist who often comments on Bitcoin as a scam, also analyzed the causes behind the Bitcoin mess from an economist’s perspective in his column at the request of readers.
The 51st meeting of the Financial Stability Development Committee of the State Council was held, which called for resolute prevention and control of financial risks, adherence to bottom-line thinking, strengthening all-round scanning and early warning of financial risks, promoting the reform of small and medium-sized financial institutions to reduce credit risks, strengthening the supervision of financial activities of platform companies, and more importantly, cracking down on bitcoin mining and trading practices, and resolutely preventing the transmission of individual risks to the social sector.
The cryptocurrency market has been volatile recently, causing concern in the market. 2008 Nobel Laureate in Economics Krugman said that Bitcoin was introduced in 2009 and is the largest and oldest cryptocurrency; cryptocurrency as the name implies uses an unbreakable encryption key to establish the chain of ownership, giving the holder “the right to…hold those tokens” and today claims to be able to use bitcoin to buy houses, cars, pay bills, engage in business investments and more.
But Krugman points out that, in fact, 12 years later, cryptocurrencies such as Bitcoin “play virtually no role in regular economic activity,” and that the only times we hear of them being used as a medium of payment rather than speculation are almost always in connection with illegal activities, such as money laundering or ransom payments to hackers.
Krugman notes that the lack of adoption by the general law-abiding public is not due to the lack of effort by cryptocurrency advocates, who have in fact invested considerable time and effort in seeking to develop some sort of “killer app” that would allow the general public to finally adopt bitcoin, ethereum or other cryptocurrencies in their daily lives. But he participates in countless cryptocurrency and blockchain-related conferences, asking what problems cryptocurrency technology “is trying to solve? What is it that needs crypto coins and can’t be done with other cheaper and better technologies?” but never received a clear answer.
However, investors continue to spend a lot of money to buy these “seemingly useless” digital assets. The reason for this is apparently that the price of crypto coins continues to rise, with a combined market cap that at one point exceeded $2 trillion – more than half of the total value of intellectual property owned by U.S. corporations. The cryptocurrency market rocketed, making early investors a fortune, and so attracting new investors after new investors.
Krugman says it sounds like a speculative bubble, or even a “Ponzi scheme,” and that it has lasted for years without collapsing, based on “brilliant words.
For one thing, crypto-currency advocates are good at using difficult technological jargon to convince themselves and others that this is “a revolutionary new technology”. However, blockchain is in fact old by IT standards and has yet to find any convincing use.
Second, libertarians claim that government-issued fiat money will one day collapse without physical backing like gold. Yet, Britain abandoned the gold standard 90 years ago, and the pound is still fine?
Krugman says he is skeptical of crypto coins, but won’t bite the bullet and say a collapse is imminent. His reservations are based on the fact that even non-yielding assets such as gold have long been prized. He points out that gold suffers from much the same problems as bitcoin: it may be seen as money by the public, but it lacks the qualities of a practical currency: it can’t actually be traded (try buying a car with gold bars) and its purchasing power is highly unstable.
Many governments around the world are wary that crypto coins are being used for evil and are likely to clamp down on them, but they don’t ask about gold trading; secondly, the rapid proliferation of crypto coins, which are becoming less and less numerous than they should be, may prevent any of them from achieving a status similar to gold – almost sacrosanct in people’s minds.
Krugman concludes that Bitcoin and its cryptocurrency relatives have never achieved meaningful economic status, and whether their prices are high or low is of little importance to those who don’t play the crypto game.
Recent Comments