🤔 is crypto our subprime?
Unraveling the disrupting, and disturbing, nature of digital currencies.
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The Big Story
Crypto resembles subprime mortgages.
That's what Paul Krugman, one of the world's most renowned economists, said about the recent slump in his latest New York Times opinion piece.
The Nobel Prize laureate said that there's evidence that the risks of cryptocurrencies are falling on minorities and others who don't know much about it.
According to a NORC survey he cited, 44% of crypto investors were nonwhite, while 55% didn't have a college degree. Krugman says that these are the exact groups of people targeted by lenders during the 2007 subprime mortgage crisis that sparked a global recession.
While he didn't say that crypto would cause an overall economic crisis, he said that the recent drop, which cost around $1.3 trillion in market cap, has disturbing effects on those who are poorly positioned.
"If you ask me, regulators have made the same mistake they made on subprime: They failed to protect the public against financial products nobody understood, and many vulnerable families may end up paying the price," he added.
The 68-year-old is one of the most prominent crypto bears who has consistently voiced his concerns with others, including Warren Buffett, Bill Gates, and Peter Schiff. And he continues to do so at a time when the crypto markets are going through a seismic growth cycle as regulators increasingly become wary of their use in scams and other illicit activities.
Okay, but what’s with the slump?
Well, the pandemic created an economy where the interest rates were low and unemployment was skyrocketing. But when the US government started rolling out stimulus checks, the money went flowing to Wall Street and investors. This is why the stock market saw a record rise in retail participation last year. Plus, with NFTs becoming more mainstream, the crypto market—which previously remained decoupled from the stock market— soon merged with the traditional economy as institutional investors started pouring big money.
And it certainly seems to be paying off as monthly NFT trading volume surpassed a record $6.13 billion last month—a 129% growth since December. Even celebrities like Tom Brady, The Weeknd, Post Malone, Snoop Dog, and Paris Hilton have jumped on the NFT trend. That said, the hype isn’t immune to scams as there have been some instances. But overall, there’s been a greater, wider acceptance of digital assets in the last two years.
The new future
In its latest earnings call, payments giant Visa said that its crypto-linked card usage hit $2.5 billion in its first fiscal quarter of 2022—70% of its crypto volume for the fiscal year of 2021. Citing this growth, Visa announced that it's expanding its network of crypto wallet partners from 54 to over 65, adding that it now has more than 100 million vendors accepting crypto as payment. The company has no plans of slowing down as it recently launched a crypto consulting service and continues to make investments in crypto platforms.
Witnessing such broader adoption of crypto, even some Wall Street banks like Credit Suisse, Canaccord Genuity, and Jefferies have started hiring to fill out crypto-related roles within their research divisions. And more banks will continue to do so as the Web3 innovations bring additional traction to the community and transform long-term wealth creation for individuals.
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