Krugman, who previously authored an op-ed piece in The New York Times titled “Bitcoin Is Evil” back in 2013, recently took issue with the cryptocurrency’s alleged lack of both utility and intrinsic value.
Comparing Bitcoin to gold, Krugman drew comparisons between the two assets, claiming both were impossible to counterfeit and vulnerable to theft.
However, that is where the similarities end, and Krugman goes on to assert that Bitcoin is inferior to centralized alternatives such as fiat currencies and gold on several counts. The economist poses two questions – “(1) what problem does this clever solution [cryptocurrencies] solve? (2) what determines the fundamental value?” – before going on to state that there are “no good answers to either question.”
According to Krugman, the electronic transactions that cryptocurrencies make possible can also be accomplished via bank accounts, debit cards, and services like PayPal. He went on to add that while these other methods require you to trust a third party, this shouldn’t pose any problems unless you’re engaging in illegal activities.
Krugman also stated that “the distributed database + costly mining makes cryptocurrencies clunky and much less useful for ordinary transactions.” Earlier this month, Krugman had seemed oddly pleased that The North American Bitcoin Conference was unable to accept payments in Bitcoin, dubbing the cryptocurrency “too clunky and expensive.” However, this is not an intrinsic or even permanent feature of Bitcoin, and solutions such as the Lightning Network are currently under development.
In addition to highlighting an apparent lack of practical usability, Krugman also questioned the cryptocurrency’s value. He claimed that while fiat currencies are backed by governments and gold is “actually useful” and tethered to “reality”, cryptocurrencies have none of these features. Quoting Robert Shiller, who labeled cryptocurrencies a Ponzi scheme, Krugman claims that Bitcoin’s price rise “has been driven purely by speculation”:
“If people come to believe that Bitcoin is worthless, well, it’s worthless.”
Krugman’s opinions about the intrinsic value of Bitcoin and its peers reflect not only a mistrust in their decentralized nature, but a conventional frame of thought which is reluctant to consider more complex and technological concepts beyond state-owned and controlled currencies. Created in 2008, Bitcoin appears worthless to Krugman in the face of stores of value such as gold, which has been established as such by what he terms a “5000-year history.”
Krugman also claimed that the Bitcoin market is “very vulnerable to manipulation by unknown players” such as North Korea. However, market manipulation is not an exclusive feature of the crypto market, and traditional markets are equally susceptible to it.
Concluding the tirade, Krugman expressed his doubts about whether the blockchain is “useful for anything,” and stated that investing in Bitcoin is “a lot less reasonable than investing in cold fusion.”
“The currency [Bitcoin] isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.”
However, while Dimon has since stated that he regrets his prior comments on Bitcoin, Krugman, it appears, remains unimpressed.