Nobel Laureate Paul Krugman: Cryptocurrencies Have 'Disturbing' Similarities to Subprime Crisis

On January 29, Nobel laureate in economics Paul Krugman issued a warning about the volatile cryptocurrency market, comparing it to the subprime mortgage crisis in the United States. In an article published Thursday, Krugman noted that disturbing parallels were seen between cryptocurrencies and the U.S. subprime mortgage crisis. The subprime mortgage crisis sent the entire housing market into a tailspin and sparked the global financial crisis of 2007-2008. The subprime crisis was essentially the result of banks lending to high-risk groups when interest rates were low and house prices skyrocketed. Once the market saturates, homeowners find themselves in negative equity and unable to repay their loans, causing huge losses for lenders. Krugman believes that cryptocurrency investors are also buying speculative financial products without really understanding the risks involved. Notably, Krugman is a well-known Bitcoin bear who has likened the cryptocurrency to a Ponzi scheme. “In the subprime crisis at the time, many borrowers didn’t understand what they were in,” he said. “Right now, the huge price swings in cryptocurrencies don’t seem to be related to fundamentals, so it’s a very risky asset class. "