Is Crypto the new subprime?

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.nytimes.com/2022/01/27/opinion/cryptocurrency-su…

**How Crypto Became the New Subprime**
**By Paul Krugman, The New York Times, Jan. 27, 2022**

**...**
**By last fall the combined market value of cryptocurrencies had reached almost $3 trillion. Since then, however, prices have crashed, wiping out around $1.3 trillion in market capitalization.... $1.3 trillion in losses is only about six percent of U.S. gross domestic product, a hit that’s an order of magnitude smaller than the effects of falling home prices when the housing bubble burst. ...**

**There’s growing evidence that the risks of crypto are falling disproportionately on people who don’t know what they are getting into and are poorly positioned to handle the downside....According to a survey by the research organization NORC, 44 percent of crypto investors are nonwhite, and 55 percent don’t have a college degree. This matches up with anecdotal evidence that crypto investing has become remarkably popular among minority groups and the working class....** [end quote]

I wouldn’t touch crypto with a 10 foot pole. It’s a Ponzi scheme. Cryptocurrencies are good for money laundering and tax evasion. Legal financial transactions should go through banks and other regulated fiduciaries. Crypto isn’t a store of value. It’s a pure speculative play.

Krugman makes the point that the riskiest subprime mortgages were sold to unsophisticated people, often the young, poor and minorities, who didn’t realize the danger. Crypto is appealing to the same people who are looking for a quick, speculative increase.

It’s not big enough to wreck the financial system, but it’s plenty big enough to suck the savings out of these people.

Wendy

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Cryptocurrencies are good for money laundering and tax evasion. Legal financial transactions should go through banks and other regulated fiduciaries.

Wendy

On this one single point alone, I don’t understand why the scheme is allowed to exist. From Day ONE. ANYWHERE. What if it were ADVERTISED as:

"Here, you can conduct any business you want, and you absolutely can’t be detected by the law. Whether it’s tax evasion, drugs, fencing stolen property, running brothels, skimming casino proceeds, laundering, anything and everything. Crypto is your bullet proof financial answer.

Add all this to all the other wholly valid points you raise, how has the beast gotten as far as it has? HOW? To me, it is quite the puzzle. What has kept it from having the door slammed on it from the get go?

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…last fall the combined market value of cryptocurrencies had reached almost $3 trillion. Since then, however, prices have crashed, wiping out around $1.3 trillion in market capitalization…

Only $1.69999999 trillion to go.

Pete

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Crypto is a far smaller problem than student debt incurred in the pursuit of an uneconomic college degree.

intercst

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Cryptocurrencies are good for money laundering and tax evasion.

ah there is an ironclad ledger saying where the crypto was last.

The $1.33 tr is not just part of the US economy. Trying to make it relevant to the US economy was poorly done in that article.

So people without a college degree are ignorant? Tradespeople make more than most college grads. Or does learning sociology make one superior?

If 44% of buyers make less than $60k (that was the prior stats, I forgot this articles exact income for the stat and am responding further down the thread, that makes 56% of buyers in higher income households. I guess income is one way of saying “intelligent”.

Cryptos are very volatile. No one is kidding themselves otherwise. But assuming every buyer is an idiot who does not know what they are doing is a stupid assumption. Much of the stats etc and assumptions forget people bought in lower. Oh totally forgot about that possibility? aaaa

Did March 2009 make every rich person in America an idiot who had no clue? Hardly.

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Cryptocurrencies are good for money laundering and tax evasion.

Tax evasion was the libertarian dream. Now it is the libertarian nightmare. After all of their going on about cryptos.

Turns out the IRS is demanding payment this time around. Ask your account about this. If s/he has any clients with cryptos a bit longer term in the market, s/he may have a few nightmares to report.

My account has one guy who in 2020 and 2021 made all sorts of trades in crypto and kept none of the records he needed to keep. The IRS is going to bill him for capital gains on 100% of the money. No negotiation on what the client has invested…no record of what he invested.

All of the crypto companies are now becoming responsible for issuing 1099s.

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accountant

I still rush to write things.

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Crypto is a far smaller problem than student debt incurred in the pursuit of an uneconomic college degree.

intercst

Student debt incurred in getting wholly uneconomic degrees IS a very serious problem. Not the least of the problems the burgeoning costs of college, which has surely been fueled and abetted by the money made freely available to students.

Student loans should only be made available where it is proven that they are funding real degrees for real disciplines, and will give the graduate something to offer an employer, and will get hired in real jobs that have real prospects of paying off their loan before they retire or die. There is no such scrutiny like that going on today.

However, I must disagree that student loans are a bigger problem than crypto; the crypto problem seeps into all aspects of the financial sphere, world wide. It is doomed to collapse, and will likely have far ranging effects when it does. All bad.

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Crypto is a far smaller problem than student debt incurred in the pursuit of an uneconomic college degree.

Intercst,

The US federal government ought to subsidize all interest payments on student loans, but NOT pay off the principal balance of student loans. I worked my way through college and paid off my own student loan and today’s borrowers should as well.

If the government wants to subsidize the interest charges on someone else’s loans, that’s fine. However, if they pay off the principal balance of any outstanding student loans, they ought to reimburse me for the principal amount I paid off for myself.

If you sign your name and borrow money, you ought to pay it back - unless you are insolvent and file bankruptcy to discharge the debt and ruin your credit for 7 years.

Student debt ought to be dischargeable in bankruptcy, but not until a certain amount of time after you graduate and get the sheepskin for which you took on the debt.

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Cryptocurrencies are good for money laundering and tax evasion.

Let’s be honest. Greenbacks, good old printed USD, are excellent ways to launder money and evade taxes. And unlike paper currency, the entire transaction ledge for Bitcoin is available for anyone to view, at any time.

That said, I won’t go near crypto either.

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Cryptocurrencies are good for money laundering and tax evasion.

And ransomware, which is a subset of those, gets made easier by crypto as well.
Although last year it appears that maybe it isn’t too easy, at least in a high profile case such as the colonial pipeline case.

However, we don’t really have a good idea of how many unpublicized ransomware attacks the companies we deal with and our government agencies that work for us were just quietly paid off without an announcement being made.

Mike

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Notehound7
I worked my way through college and paid off my own student loan and today’s borrowers should as well.

Ditto here. Married, with kids. Worked*** my way thru. Full loads. Four years total. Zero debt at the end.

***Sleep was highly overrated.

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I worked my way through college and paid off my own student loan and today’s borrowers should as well.

Ditto here. Married, with kids. Worked*** my way thru. Full loads. Four years total. Zero debt at the end.


That is wonderful.....now back to the present world.

The cost of tuition is far higher. At state schools the state is subsidizing roughly 20% as opposed to the 80% common subsidies when "we" were in school.
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One might note that those of us who emerged from college with no debt in many cases did so at a time when the cost of college was a tiny fraction of what it is now.

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One might note that those of us who emerged from college with no debt in many cases did so at a time when the cost of college was a tiny fraction of what it is now.

Tamhas,

I teach part-time at a large, 2-year state technical college that awards A.S. and A.A.S. degrees in many disciplines in high demand. Our tuition for 14 credit hours (a full course load) is only $1,818/semester for in-state students, $3,218/semester for out-of-state students, and $6,018/semester for foreign students. This is a tremendous bargain - especially since our students have a 95.9% placement rate and a 70.1% in-field placement rate. No student who really wants to work is likely to find themselves unable to find some kind of job sufficient to pay their student loans.

Tuition, Fees, Room & Board at my undergraduate alma mater (a private Christian college) this year run about $44,218.00, which is only about 5 times what it cost in 1981 (approx. $9,000/year). The school’s endowment plus numerous grants and scholarships provide sufficient financial aid to cover most students’ tuition (approx. $32,000/year), so living expenses of $12,000.00 are all that a student is likely to have to cover. One would expect parents to chip in a big portion of that, with part-time work available for students who don’t want to borrow too much.

When I was in school, interest rates on student loans were between 7% and 9%, while today’s rates are less than 3%. The interest rate differential ought to make a reasonable debt load affordable. I know I had to work hard and keep expenses low in order to pay off mine.

https://www.savingforcollege.com/article/historical-federal-…

By comparison, the price to purchase upscale housing in a prime school district is between 8 and 10 times what it was in 1981, so it appears that housing has risen faster than tuition and fees. Even rental apartments are comparatively more expensive now than they were in 1981.

No doubt there are many highly prestigious colleges and universities where education costs have risen to ridiculous heights. However, if a student is willing to study at a community college, a technical school, or a denominationally-supported or parochial private college, there’s no reason for a student to graduate with a useless degree and an unbearable debt load.

I know for a fact that some of the students I have taught over the last 10 years have squandered their student loans on fancy apartments and pizza parties, so there’s no reason to feel sorry for them when it comes time to pay the money back.

On the other hand, I strongly believe that student debt should be dischargeable in bankruptcy - subject to limitations to discourage students from walking away from their obligations when they are perfectly capable of working and making payments according to a court-ordered plan.

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the entire transaction ledge for Bitcoin is available for anyone to view, at any time.

But how meaningful is it? Let’s say you see a transaction from wallet 0x63F7A45D7342CA7 to wallet 0x44931DAE436FB6F - what does that tell you exactly? Keep in mind, those wallets are “direct”, not using some sort of US-based crypto servicing company. Could be in any country in the world, or no country, could be on a random ship in the ocean, etc.

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Mark,

I am not a forensic accountant working for the FBI. Cases of ransomware have been solved when payments are in bitcoin.