The cryptocurrency sector is collapsing due to the dramatic drop in digital asset prices following the bankruptcy of several major players such as FTX.
“Recent events have clarified the need to regulate cryptocurrencies,” he says Paul Krugman. “But it also seems likely that the industry cannot survive regulation.”
The winning economist of the Nobel prize and Princeton professor expressed a grim perspective in his op-ed for The New York Times titled “Is This the End Game for Crypto?” or Is this the end of cryptocurrencies? He released it just days after the FTX exchange imploded Sam Bankman-Friedwhich sparked a cryptocurrency sell-off and fueled fears that other crypto exchanges could exit the market.
Additionally, Krugman emphasized the sheer scale of cryptocurrency losses over the past year. The value of Bitcoin, the most popular coin, has dropped by over $ 68.000 less than $ 17.000. A drop of about 70% in the cryptocurrency market capitalization, therefore a step from beyond $ 3 trillion less than $850 billion.
Krugman, The crypto world will not survive regulation
The economist has targeted cryptocurrency exchanges and lenders, which are facing mounting financial and regulatory pressures. Krugman questioned why they exist, when bitcoin was conceived as a peer-to-peer (point-to-point) digital payments system that eliminated the need for financial intermediaries.
In his editorial Krugman he pointed out that both crypto companies and traditional banks go to people who trust them with their money. However, conventional financial institutions are regulated by the US government, which oversees behavior, controls the risks they take, and insures their customers’ deposits. Cryptocurrency investors do not enjoy the same protections.
“Recent events have clarified the need to regulate cryptocurrencies,” Krugman writes. “But it also seems likely that the industry cannot survive regulation.”
In other words, Krugman warned that cryptocurrency exchanges could become obsolete if regulators restrict the industry.
“It is difficult to understand what advantage crypto exchanges would have over ordinary banks,” said the economist. “Even if the value of bitcoin doesn’t fall to zero (which it could still happen), there is a strong reason why the cryptocurrency industry, which loomed so large just a few months ago, is doomed to oblivion.”