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Paul Krugman, a Nobel-prize winning economist, has issued a warning over the volatility of the cryptocurrency sector. Krugman noted that the crypto market had similar characteristics to the subprime mortgage crisis between 2007 and 2008.
Parallels between the crypto space and the subprime mortgage crisis
According to the economist, there were “uncomfortable parallels” between the cryptocurrency space and the crash of the US mortgage market in the late 2000s. The crash greatly affected the mortgage market in the US.
In a publication by New York Times, Krugman was quoted saying, “There are disturbing echoes of the subprime crash 15 years ago.”
The subprime crisis was caused by failure to heed the volatility in the market. At the time, banks issued loans to people believed to carry a high risk. The decision was caused by low-interest rates and the real estate market performing well.
However, the market became saturated, and homeowners could not pay off their loans. This resulted in major losses for lenders.
According to Krugman, this situation was similar to what is happening in the crypto market. He said that crypto investors were being sold highly-speculative assets without fully understanding the underlying risks.
Not the first time Krugman is opposing crypto
Krugman is a known crypto critic. The economist has previously said that the crypto market was like a Ponzi scheme. He noted that many people investing in crypto did not understand the nature of space.
“And cryptocurrencies, with their huge price fluctuations seemingly unrelated to fundamentals, are about as risky as an asset class can get,” he said.
Krugman also dismissed claims that the crypto space could disrupt the traditional financial market. he noted that the “numbers aren’t big enough to do that. The crypto space is valued at $1.8 trillion, and it peaked at above $3 trillion in November.
The crypto market has recorded increased volatility over the past one month. Prices have nearly halved across all major cryptocurrencies. Bitcoin has dipped by around 46% from its November record highs of around $69,000.
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