Cryptocurrencies depend too much on the “great fool theory” to be a desirable investment

Former Federal Reserve Chairman Alan Greenspan says cryptocurrency is “too dependent on the ‘great fool theory’ to be a desirable investment.” However, he noted that the crash of cryptocurrency exchange FTX was “purely a fraud” rather than the result of an inherent characteristic of the cryptocurrency. He doesn’t expect the FTX contagion to spread far beyond the crypto space.

Alan Greenspan on Crypto, FTX and the US Economy

Former Federal Reserve Chairman Alan Greenspan shared his thoughts on cryptocurrency, the collapsed cryptocurrency exchange FTX and the US economy in a year-end Q&A published by Advisors Capital Management this week.

Greenspan served five terms as Chairman of the Board of Governors of the Federal Reserve System from 1987 to 2006. He has been appointed chairman by four different US presidents. He joined Advisors Capital Management in September 2016 as Economic Advisor to the asset management firm.

The former Fed chairman was asked to comment on the FTX meltdown and whether he expects contagion from it. “I don’t expect the fallout from FTX to spread beyond cryptocurrency/NFT [non-fungible token] space,” Greenspan replied, citing “the information that has come to light so far.” He stressed:

The collapse of FTX was not the result of lax risk management, inadequate accounting procedures, or some inherent characteristics of cryptocurrencies – it was pure fraud.

“Fortunately, although FTX and similar firms have increased the marketing of their products in recent years, the lack of widespread market reaction to FTX suggests they are still fairly concentrated in the hands of a relatively small subset of investors,” Greenspan described. .

“Moreover, the differences we observed in the aftermath of the bursting of the tech bubble and the bursting of the housing bubble clearly showed that credit-fueled asset bubbles create much more contagion when they eventually deflate,” he said. “There doesn’t appear to be a significant amount of leverage dedicated to the cryptocurrency/NFT space right now, so I don’t expect the contagion to spread much beyond this particular asset class.”

The former Federal Reserve chief added:

In regards to the broader cryptocurrency universe, I consider the asset class too reliant on the “great fool theory” to be a desirable investment.

Greenspan also shared his opinion on the US economy and the Federal Reserve’s fight against inflation. Commenting on whether a recession is needed to bring down inflation, as some economists have suggested, he said:

A recession appears to be the most likely outcome right now.

However, he doesn’t believe “a Fed reversal that is substantial enough to avert at least a mild recession” is warranted. “Wage increases, and by extension employment, still need to ease further for a decline in inflation to be more than transitory. So, we may have a brief lull on the inflation front, but I think it will be too little too late,” Greenspan concluded.

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Alan Greenspan, Alan Greenspan Crypto, Alan Greenspan Crypto Fraud, Alan Greenspan Crypto, Alan Greenspan Fed Raises Rates, Alan Greenspan FTX, Alan Greenspan FTX Contagion, Alan Greenspan Inflation, Alan Greenspan Recession, Economy by Alan Greenspan, former FED chairman

Do you agree with former Fed Chairman Alan Greenspan on cryptocurrencies and the US economy? Let us know in the comments section below.

Kevin Helms

An Austrian business student, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests are in Bitcoin security, open-source systems, network effects, and the intersection of economics and cryptography.

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