FOLLOW US

Paul Krugman compared the cryptocurrency craze to the mid-2000s housing bubble in a recent New York Times column. The Nobel laureate warned the hype around cryptos is similar to when American citizens had faith in US housing market before it crashed, causing a global financial crisis.

Only a few investors — including Michael Burry of "The Big Short" fame and John Paulson — knew that house prices reached unsustainable heights, and had the courage to short the housing industry. 

Krugman, who won the Nobel Prize for economics in 2008, argued that the mass adoption of cryptos is caused by the "incredulity factor." US citizens couldn’t wrap their heads around the idea that house prices were as inflated as naysayers claimed, and they couldn’t believe that trillions of dollars of real-estate value might be wiped out, he added.

"It just didn't seem plausible that markets, and the conventional wisdom saying that markets were OK, could be that wrong," the economics professor and columnist wrote.

Krugman pointed out to the similarity between cryptos and the housing bubble. He said that the lack of utility for bitcoin, the difference between crypto and mainstream payments, and crypto's popularity among fraudsters and money launderers are all factors that make it viable to a crash similar to that of the housing bubble.

Krugman added that it seemed ridiculous to people that the housing market could crash, and that cryptos are going through the same fate. He suggested that crypto is "a house built not on sand, but on nothing at all," he continued.