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Paul Krugman: Bubble, Bubble, Fraud and Trouble

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“This will end badly”:

Bubble, Bubble, Fraud and Trouble, by Paul Krugman, NY Times: The other day my barber asked me whether he should put all his money in Bitcoin. And the truth is that if he’d bought Bitcoin, say, a year ago he’d be feeling pretty good right now. On the other hand, Dutch speculators who bought tulip bulbs in 1635 also felt pretty good for a while, until tulip prices collapsed in early 1637.

So is Bitcoin a giant bubble that will end in grief? Yes. But it’s a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology. And there’s something to be learned about the times we live in by peeling away that wrapping. …

In principle, you can use Bitcoin to pay for things electronically. But you can use debit cards, PayPal, Venmo, etc. to do that, too — and Bitcoin turns out to be a clunky, slow, costly means of payment. … There’s really no reason to use Bitcoin in transactions — unless you don’t want anyone to see either what you’re buying or what you’re selling, which is why much actual Bitcoin use seems to involve drugs, sex and other black-market goods. …

So are Bitcoins a superior alternative to $100 bills, allowing you to make secret transactions without lugging around suitcases full of cash? Not really… Bitcoin … is … an asset whose price is almost purely speculative, and hence incredibly volatile. …

Oh, and Bitcoin’s untethered nature also makes it highly susceptible to market manipulation. …

But what about the fact that those who did buy Bitcoin early have made huge amounts of money? …

As Robert Shiller, the world’s leading bubble expert, points out, asset bubbles are like “naturally occurring Ponzi schemes.” Early investors in a bubble make a lot of money as new investors are drawn in, and those profits pull in even more people. The process can go on for years before something — a reality check, or simply exhaustion of the pool of potential marks — brings the party to a sudden, painful end.

When it comes to cryptocurrencies there’s an additional factor: It’s a bubble, but it’s also something of a cult, whose initiates are given to paranoid fantasies about evil governments stealing all their money (as opposed to private hackers, who have stolen a remarkably high proportion of extant cryptocurrency tokens). …

So no, my barber shouldn’t buy Bitcoin. This will end badly, and the sooner it does, the better.


Source: http://economistsview.typepad.com/economistsview/2018/01/paul-krugman-bubble-bubble-fraud-and-trouble.html


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