Paul Krugman suggests that some investors might consider switching to gold over bitcoin as crypto scandals can erode confidence in digital assets.
Nobel Prize-winning economist, John Bolton, noted that prices for precious metals have been more stable than bitcoin in the past year. However, both have downsides with rising inflation and aggressive Federal Reserve interest rate hikes.
Krugman stated that cryptocurrencies were kept high by both a mixture of supporters’ enthusiasm for the cutting-edge technology and a libertarian view on money.
In a Sunday commentary, he stated that investors are losing faith with trendy technobabble.
“They still want their pet rock, but crypto’s plunges, scandals, and other factors are causing some to return to pet rock with centuries of tradition behind it – that is gold, the pet stone of the ages.”
Krugman was referring to recent statements by Jamie Dimon, CEO of JPMorgan, about cryptocurrency being a pet rock. He said that cryptocurrencies can’t be used for exchange and that there aren’t any stores or other places where you can hand over crypto and receive something in return.
Krugman himself has repeatedly criticized bitcoin and other cryptocurrency in the past, calling them useless, wasteful, and only valuable because of hype and speculation.
A Goldman Sachs analyst predicted that bitcoin would overtake gold in market share at the beginning of 2022, according to a City University of New York professor.
“Is it possible that precisely the opposite has been occurring?” In the op-ed, he asked:
Krugman stated that Bitcoin lost more than two-thirds its value since late 2021. Many high-profile stocks like Tesla and (cough), Tesla have also fallen from grace. However, gold has hung on, with its current price only a few percentage points below its 2020 peak.
Bitcoin has fallen more than 65% since its peak in November 2021 at $65,000 and has lost almost 38% over 12 months. However, it has risen about 39% so far this year. Gold has increased by 4.4% over the past year, and is up more than 5% so far this year.
Krugman says that investors are returning to gold because of the recent collapses in crypto stocks. Recent implosion at FTX, a leading crypto exchange, has severely eroded investor confidence in digital assets already in decline.
He said that while rising interest rates would normally impact demand for gold and crypto, Tesla, and other meme stocks, precious metals prices are surprising robust. High interest rates are thought to depress gold demand because people are attracted to higher-yielding investments, such as bonds.
You might think that investors buy gold to protect themselves from inflation. Krugman stated that bitcoin is not an inflation hedge and has failed to do so.