Law enforcement has privately estimated that at least 50% of crypto transactions are for the laundering of financial crimes--fraud, bribery, tax evasion, etc.
Contrast the following situations:
1. In 2023, Silicon Valley Bank depositors were screaming and yelling about losing money;
2. In 2023, there wasn't a peep from those defrauded by FTX and its Bahamas crypto operation.
Why?
The head of the Sinaloa drug cartel wasn't about to go on CNN one day and complain, "I just lost 6-months of my fentanyl sales at FTX!!!"
So in a sense, crypto is a derivative--a derivative based on financial crime. If financial crime flourishes, crypto should go up. If financial crime is brought more under control, crypto should drop in value.
And with this Administration's de-emphasis of white collar crime enforcement and its concurrent support of crypto for (illegal) personal enrichment, the stars, unfortunately, are aligned for a significant crypto expansion into legitimate markets and for its subsequent much larger bust.
Is there no surprise, therefore, that the King of Scam and his wretched family saw an emerging opportunity that they couldn't resist? All of a sudden, with ZERO effort or funds from their side, tRump and his family have made BILLIONS in only four months? Bring it on!, says the King, "there's a sucker born every minute", and let's get as many as possible on the yuuge crypto rug before we give it The Big Pull!
If these crypto forms are mainly for illegal use and annonyminity, i.e., you can’t “follow the money,” maybe it should be “Buyer beware” and not pass the “Genius Act,” not have it backed by US debt. Should there be ANY regulation? Should it be banned?
Although that would just lead to the NEXT shadow banking system. There is always a perceived "need" for unregulated banking, be it higher profits, or protection from regulation, or criminal obfuscation. And as long as there is a demand, capitalism will provide.
Humbly, I think history teaches us, or tries to teach us that criminal activity will always be growing / mutating, sort of like viruses - eternal vigilance will always be required. To whack-a-mole we go.
When I read Prof. Krugman’s article the first thing I thought is that crypto is the CDO of our time (collateralized debt obligation — see Lehman Brothers and Bear Sterns and the 2008 financial meltdown). While blockchain, the underlying tech behind crypto, has value in term of authenticating transactions, I have never once thought crypto has any legitimate use. I’m pleased to see I’m not alone.
As long as my tax dollars do NOT bail any of them out when it turns into a mess. Voters may want their reps to represent their constituents’ interest. i don’t know how much damage they need to do to finally get it.
Somewhere,Somehow, As crypto becomes part of our financial system, when (not if) there is a crash, the government will be forced to step in to avoid a massive global depression. We will, again, be bailing out those that are making billions on crypto. The little guy, like in 2008, may be left behind.
I forget the exact number but IIRC it's something like 20-30% of all the recovered FTX money was just abandoned by creditors who didn't want to file the paperwork. couple of billion dollars at least.
Every week at the market I watch my husband (and best friend) buy two Powerball and one state lottery ticket, and for the rest of the week listen to any number of things he would like to do if he (ever) got a substantial payout. He spent a good portion of his life in council housing in Scotland, where the lottery is a universal thing, like having fish and chips on Friday. So I 'forgive him,' sorta. It's actually cheaper than going to the movies, much less a ball game. Especially if you throw in peirogies. But from my sad, grown up perspective I sit with the knowledge than we have a few million to one chance of winning one plug nickel. And I can't help thinking that crypto is like the lottery, but worse, because buyers put so much more 'real money' into it, and are supporting criminals when they do. Ah, me.
My first exposure to a State lottery was in South America in the 60's. It was a bit of a cultural shock because in the US gambling was considered an addictive vice and was illegal. When I asked my host about how the government justified promoting the vice, he answered "Oh, it is just the way we get the poor to pay taxes". I've since always associated State lotteries with "banana republics".
Banana republics? I'm not sure about that. I do know that state lottery in Germany is older than Germany, to wit: Prussia declared a state monopoly on lotteries in 1736. Prussia was certainly not a banana republic, if only because it wasn't a republic :-)
I think that's exactly what it is, although it can be dangerously addictive. Sadly many poor people who win the lottery go bankrupt in a few years as they have no idea how to look after money.
Not really. Lottery buyers are hundreds of times more likely to get run over by a bus than they are to win a lottery jackpot. There are few things you can be more certain of than the belief that the lottery ticket you just purchased will not win a substantial payout.
This is what bothers me. Instead of a numbers racket preying on the poor, the state is doing it. There is a real risk of gambling addiction, either a new addiction or an additional one. (I am a retired addiction specialist.)
Buying a lottery ticket has NONE of the downside that crypto has. It doesn't become a gambling problem either. There's a moment of hope yes, but this is benign.
At least most of the ticket money goes to the public schools, here in PA. But if you ever saw the folks feeding the scratch off machines you might alter your stand about whether or not there's at least some signs of a gambling problem there. But agreed that crypto is a horse, or maybe rhinoceros, of a different color.
I have no idea, but you’re right that the lack of transparency looks suspicious. The history of people running gambling operations includes a lot of unsavory characters, so transparency, you’d think, would be important to a government-sanctioned gambling operation. Plus, the promotion of scratchers and other immediate-feedback “games” puts the whole thing a sinister context.
Interesting ....that's what I've heard was used to get riverboat gambling legalized here years ago--the same bs was used to pass internet gambling here recently.
One of the original justifications for crypto was that it provided a form of currency completely decoupled from any government. Now that the pyramid scheme looks to be topping out, the only salvation for those at the top is to convert crypto into something backed by government. And yet not controlled by government.
I see no possible positive outcome here. I think crypto will inevitably collapse, and taxpayer will be forced to bail out the criminals behind it.
The problem of decoupling currency from a government is recourse, or a lack thereof! Crypto has no regulators and no transparency. The investor does not know at any moment what the capital standing of the issuer is.
Are the solvent or in the red? Have they issued more currency than the assets on hand to back it?
This is the stuff that the OCC, Office of Comptroller of Currency and State bank regulators look at.
In short with crypto, be it BitCoin or StableCoin, you are throwing your money into a black hole where there exists no transparency or accountability. You have in essence given funds to a mobster who may not elect to give it back. You have no recourse, only the 'word' of the monster.
My fear is that we will be forced to use it--like they are trying to force us to pay electronically hooked up to our bank accounts, use our phones for parking to track us electronically....the Pay Pal mafia used DOGE to get our info and now Palantir is getting the contract to combine our info across all federal (state?) agencies. What did those dimwits who have quit their jobs at DOGE/Palantir due to their "conscience" think this was all about when JD Vance was shoehorned into the vice-presidency?
The price of bitcoin has already collapsed several times. The SEC under Gary Gensler was going after unlawful crypto companies, but crime is legal now.
This is another MUST-READ from fabulous Paul Krugman.
Americans need to protect their currency and their institutions from the crazy thugocracy that Trump is installing. Bringing crypto into the financial system is a critica form ofl endangerment.
Which is why the crypto bill is going to be disastrous. The crypto currencies will still be completely out of any government's control, but now the United States government will be forced to bail out the crypto criminals, handing over real actual dollars to replace the Monopoly money that was their crypto assets when crypto inevitably collapses.
Yeah, this will be the next big financial crisis. It’s hard to see this coming, but be powerless to do much about it. I’ll write my congressperson and senators but I’m sure their minds are already made up so I’ll have little impact. Party drives (most) voting now, not common sense, knowledge, representation, or any other noble reason. Sad!
Cryptocurrency, in brief, is a way that anybody anywhere in the world can put money into someone else's pocket, anonymously and untraceably. Except that a sender who WANTS the recipient to know who gave the money can prove it, privately. If you were trying to design a system to encourage bribery of government officials, you couldn't do a much better job.
People are putting money into the Trumps' pockets in at least four different ways:
(1) directly transfer money into their "digital wallets" as a gift,
(2) buy crypto-assets (such as $TRUMP and $MELANIA memecoins) from which the Trumps receive a transaction fee,
(3) buy Trump-issued stablecoins, which even if 100% backed by real dollars constitute an interest-free loan to the Trumps (which they presumably invest and keep the income therefrom), and
(4) buy floating-value assets that the Trumps are known to already own a lot of, driving up their price and thus making the Trumps richer.
What do they get for all this? Access, dinner with the President, pardons, government contracts, deregulation of crypto itself.
Klein and Faux point out that floating-value cryptocoins like Bitcoin, as the quintessential "fiat currency", have become largely a Ponzi scheme: the first people to buy in are now astoundingly wealthy, and the second tier of buyers are fairly wealthy, but the pyramid has now expanded to millions of people and (like all Ponzi schemes) is in danger of running out of new money. Where else could you get new money? From the US taxpayer: just convince the President of the United States to order the Treasury to buy many billions of dollars' worth of Bitcoin, and the price will keep going up, making those who already own it much richer. The Bitcoin people are completely open about this: they say in so many words that the point of getting US government investment is "Bitcoin goes to a million". But as always, when a Ponzi scheme collapses, the last group of investors lose their shirts, and this time that'll be the US taxpayer.
If we ever get an independent Attorney General, Secretary of the Treasury, or Secretary of the Interior again, or perhaps a group of Congress members with imagination and determination, it may be possible to at least recoup what Trump is putting into his and his family's pockets by these means of selling the asset of access to the President. A well-established legal principle is that if something of value is obtained by improper means, it is held as a constructive trust for the benefit of the rightful owner. In this case that would be the treasury or interior department of the U.S. Someone with standing as a representative of the rightful beneficiary can sue to have ownership transferred to that rightful beneficiary.
The problem is that most of the methods Klein and Faux describe for slipping money into the President's pocket are perfectly legal in themselves -- and if they weren't already, he's changing the rules to make them legal. The only thing "improper" is using them to bribe a public official to serve your interest rather than the public interest.
I am lat getting on discussion, so please forgive me if the following minor observation has already been made.
There is one other legitimate use of crypto currency--possible increased security from theft. It is more difficult for thieves to rob the currency than to steal cash, especially that carried on ones person, or invade a credit or debit card or bank account. On the other hand, people are known to lose their crypto account i.d. and thereby lose all they have deposited in the account. Also, depending on how the holder stores that information, I assume that some have also had crypto stolen in much the same way credit and debit card passwords have been stolen.
Thanks for explaining crypto. I finally understood a bit of it. However, to me the worst feature of crypto is how it has solved the kidnapper's (or extortionist's) dilemma: how to get paid without getting caught. There seems to now be a vast industry of extortionists attacking small companies and other institutions with ransomware. Usually, the victims simply pay up in crypto to make the problem go away. And the extortionists go away with their untraceable loot. And we usually don't hear about it because the victims want to protect their reputations for safety.
Yes. The victims of ransomware pay up. But where does the money come from? It comes from lost business, lost sales, and the shattering of dreams. Take away crypto and you not only take away ransomware, you also take away romance scams, pig butchering, and sextortion.
i don't understand all the workings of crypto currency but Paul says that the only thing you can buy with crypto is other crypto so i don't see how you can make a profit in real money
by only using and selling fake money? maybe someone can explain that better.
I think he unintentionally overstated the case with respect to your focus here. You can also buy dollars with crypto, at the market rate. Really you’re selling your crypto to someone else for dollars. Or Euros. Or whatever. From the perspective he is focused on, which is their use cases, you cant buy anything with crypto. He is focused on the purpose of crypto, and the only useful purpose is concealment, which serves only criminals. Note that its ability to be converted to actual useful currency is an integral part of the criminal use case.
I actually dipped my toe in the market of bitcoin purchasing through Robinhood. You buy and sell exactly like any other trade. Buy low, sell high. I got out of this trading quick when Trump took office. Its very dicey and I didnt have the stomach for it. Very much like gambling.
You can sell your Bitcoin for cash on exchanges like Coinbase. You can also buy Bitcoin as an ETF so you don't have to worry about maintaining private keys — in other words, be your own bank. You can also buy your casino chips by investing in Microstrategy.
If you own BTC, you need a keep track of your private key. It's like a passcode that allows you to access the crypto. Lose your key and you lose your BTC. (You can read stories of people trying to locate their hard drives in dump sites after the price of BTC went up.) An ETF (exchange-traded fund) is a security that tracks the performance of BTC, so you are not actually holding the crypto.
A friend of mine bought me .5 BTC as a sort-of-novelty gift for my birthday circa 2013. He gave it to me on paper Bitcoin.. I held on to it for a while, then found it in a drawer one day and tried to figure out how to use it. I gave up after a few minutes and just tossed it out 🤦
The most interesting thing about Bitcoin is the price, which is easily manipulated. Even when you are trading a Bitcoin ETF, it's important to remember that the actual price of BTC is determined by trading in unregulated offshore exchanges, where crypto is bought and sold for dubiously-backed stablecoins. The lure of crypto has always been "get rich for free."
Krasnov can transfer US wealth to Russia while holders of short term US securities get 100 year non-interest bearing bonds. He keeps mentioning Ft Knox and abolishing the FDIC for a reason.
There are exchanges you can use them to move usd into and out of traditional banks. Exchanges act like a Schwab account for crypto. Paul is mostly right but i can think of two use cases for stablecoins.
First would be to send money across borders. You can 1. buy a stable coin on an exchange. 2. send it to recipient's/your wallet 3. recipient sends it to an exchange in their country. 4 sell stable coin on their exchange and then send currency to their bank in home country. All of this can be done pretty inexpensively and relatively quickly depending on what you use.
Second would be to hedge against USD. STBLREUR is a euro stable coin that has some regulation associated it with it. You can buy it on US exchange and hold it in your wallet or on the exchange. As the Euro fluctuates your conversion back to USD does.
Holding a stable coin has counterparty risk. Holding it on an exchange has even more because now the exchange can also fail etc. To me this would be analogous to buying currency ETFs but maybe safer. As those have lots of counter party risk associated with them. If the stable coin has true reserves then your only risk is sovereign theoretically.
The Senate bill had me earnestly look into this really for the first time. The space is so full of scams I just waved it off. For it to be widely adopted some changes will have to be made. You can screw up and lose all your money by making a simple mistake so the barrier is pretty high for people to use it safely and effectively. All of this is IMO ofc.
Sending money across borders is only difficult if currency controls are in place. And if you're using crypto to circumvent currency controls then you're breaking the law. So case 1 isn't really an example of a legal use case.
If you hold a stablecoin on an exchange then you don't actually own it. There is no insurance like with a brokerage account. So if the exchange goes belly up you can lose it. Like happened to SBFs platform (he went to jail). if you put it in your wallet the coins value is still dependent on the quality of the reserves. Each stablecoin is backed up by some sort of reserve. For something like USDC it could be treasuries, it could be cash in a bank it could be other stablecoins. Generally from what I have read if it is other stablecoins it is small % (which that in and of itself is concerning) That cash held in the bank is not FDIC insured. So if bank goes belly up , think Silicon valley bank (SVB) that money in reserve is put at risk. I think the rest you can fill in the blanks. Hope that helps.
There’s a big benefit to stablecoins that you omit: the issuers of stablecoins make oodles of money for doing little work and taking little risk because they earn interest on their Treasury bond holdings but don’t pay interest on the stablecoins that their customers hold.
They will probably engage in leverage to get even higher returns. They will be operating a bank, but they may not be satisfied with Treasury interest rates. That’s when the backing gets risky.
In his book "Number Go Up" Zeke Faux says he believes that Tether is issuing more stablecoin than they have reserves to back them up with. They do this by "lending" rather than selling coins. Tether has never been audited and they are secretive about how exactly their reserves are invested.
If this is true then they're basically the same as the wildcat banks.
Another thing to keep in mind - crypto is an environmental disaster that siphons up huge amounts of energy! I don't quite understand how it all works, but there are computer banks going up that use more energy than entire towns next to them. They run hot and need lots of air conditioning, which makes them loud nuisances for people living close by as well!
And these huge draws of electricity present instability to the physics of the electric grid. Example… dropping huge load drives up system frequency, causing frequency related protection breakers to trip, causing more instability, causing cascading trips. Bad.
Professor Krugman: thank you for the history of money/banking lesson along with your cautionary note about crypto. i've long been concerned about how crypto resembled organized gambling, but your piece outlines how all these things tie together and how they exist to harm people. why are our congresscritters not listening to their experts? (i assume they HAVE ACCESS to several experts on any particular bill they are asked to vote on?)
They are not listening because of the huge amount of money the crypto people spent during the election on both Republicans and Democrats. We now have a bought and paid for government that will sell any part of our country such as public lands.
Not only does crypto put us all at risk for financial collapse, it and its cousin AI are huge new consumers of power demand. Instead of limiting and reducing our carbon use we’re ratcheting it up to make huge transfers of wealth to those who are already rich.
Let's be honest, tRump and his tRump Organization have always been New York mob boss/mob. It is far darker than the 'Elect a clown...' meme. Crypto is doing a booming business right now because our Mob-Boss-In-Chief is using it to rake in all of his graft and grift. Since it is anonymous, I think is safe to say he is not paying taxes on all this crypto largesse he is receiving. Maybe we should all be sending this explanation on to our Congress Critters.
Donald is always doing lots of things which look crazy to me and many others.
It seems that the only consistent thread through Donald's craziness is that it probably ends benefiting himself or his close associates/family.
I fully expect Donald to saddle the U. S. Treasury (or some part of the government) with huge stakes in crypto or stablecoin or both. The American taxpayer will take a financial bath, but Donald and associates will make billions.
I still find it hard to figure out why the American electorate picked a con man and serial grifter/mob boss for President this past November. I have heard and read all of the explanations but still find it unbelievable.
Thanks to Professor Krugman for his explanation of crypto, tariffs, and economics.
Right. Biden and Harris are not my favorite candidates. But either one would have done a lot less damage to the country than Donald is/will do. If Harris had been elected, it would have been pretty much a continuation of the Biden administration.
People say that she is a radical, but what could she have done. Congress is divided and dysfunctional so she could not pass laws or institute new programs. If she had issued an executive order a right-wing group would have gone to Texas and filed a lawsuit to stop it.
It seems to me that many voters said, "I hate Biden, Harris, and transgender children so let's turn the country over to Donald so that he can burn the place down and ruin the economy."
I have a friend in IRS-CI, the main agency tasked with ferreting out crypto scams, & he thinks the Trump administration is preparing to do away with the whole business unit. It does make sense, given that trump has pardoned a TON of tax cheats. Thats thousands of man hours on meticulous casework flushed down his golden toilet.
To which I would comment: hasn't he heard of the Euro? But also, more importantly, they can be used to de-dollarise currencies that are being slaughtered by the US government's economic policies.
Only about half of Europe is on the Euro, so this would be cross-border. The stated advantage of using stablecoin was to speed up the value transfer across borders by bypassing banking controls, but I'm just amplifying a technical podcast, I'm not an expert.
You would have to use a Euro-stable coin of some sort if you want to de-link from the dollar. Or some other currency that allows for unlimited investment by "anyone"
As for speeding up - it's more an issue that Swift generally remains slow and expensive. If you are operating across European borders the likelihood is that your on- and off-ramps will require you to be KYC'd and AML'd, so you are unlikely to be able to "get away" with things that are not allowed under banking regulations.
Law enforcement has privately estimated that at least 50% of crypto transactions are for the laundering of financial crimes--fraud, bribery, tax evasion, etc.
Contrast the following situations:
1. In 2023, Silicon Valley Bank depositors were screaming and yelling about losing money;
2. In 2023, there wasn't a peep from those defrauded by FTX and its Bahamas crypto operation.
Why?
The head of the Sinaloa drug cartel wasn't about to go on CNN one day and complain, "I just lost 6-months of my fentanyl sales at FTX!!!"
So in a sense, crypto is a derivative--a derivative based on financial crime. If financial crime flourishes, crypto should go up. If financial crime is brought more under control, crypto should drop in value.
And with this Administration's de-emphasis of white collar crime enforcement and its concurrent support of crypto for (illegal) personal enrichment, the stars, unfortunately, are aligned for a significant crypto expansion into legitimate markets and for its subsequent much larger bust.
Is there no surprise, therefore, that the King of Scam and his wretched family saw an emerging opportunity that they couldn't resist? All of a sudden, with ZERO effort or funds from their side, tRump and his family have made BILLIONS in only four months? Bring it on!, says the King, "there's a sucker born every minute", and let's get as many as possible on the yuuge crypto rug before we give it The Big Pull!
If these crypto forms are mainly for illegal use and annonyminity, i.e., you can’t “follow the money,” maybe it should be “Buyer beware” and not pass the “Genius Act,” not have it backed by US debt. Should there be ANY regulation? Should it be banned?
I'd say it should be banned.
Although that would just lead to the NEXT shadow banking system. There is always a perceived "need" for unregulated banking, be it higher profits, or protection from regulation, or criminal obfuscation. And as long as there is a demand, capitalism will provide.
That's true. All we can do right now is play whack-a-mole.
Humbly, I think history teaches us, or tries to teach us that criminal activity will always be growing / mutating, sort of like viruses - eternal vigilance will always be required. To whack-a-mole we go.
Sounds about right. It's just human nature.
Love your user name 😉
Just call the Simpleton's Asset Purchase, or SAP. Act, 'cause, other than creeps and crooks, only a SAP would buy it.
When I read Prof. Krugman’s article the first thing I thought is that crypto is the CDO of our time (collateralized debt obligation — see Lehman Brothers and Bear Sterns and the 2008 financial meltdown). While blockchain, the underlying tech behind crypto, has value in term of authenticating transactions, I have never once thought crypto has any legitimate use. I’m pleased to see I’m not alone.
As long as my tax dollars do NOT bail any of them out when it turns into a mess. Voters may want their reps to represent their constituents’ interest. i don’t know how much damage they need to do to finally get it.
Somewhere,Somehow, As crypto becomes part of our financial system, when (not if) there is a crash, the government will be forced to step in to avoid a massive global depression. We will, again, be bailing out those that are making billions on crypto. The little guy, like in 2008, may be left behind.
The fly in that ointment is there is no way to identify the people who lose money on crypto.
And if entities like banks try to recoup losses how do you know the CEO didn't just transfer it all into his own wallet and claim theft?
Any attempt at a bailout will be just as corrupt as the digital currency itself.
I’m sure you are right but it should be pennies on the $100 bill.
Yikes!
I forget the exact number but IIRC it's something like 20-30% of all the recovered FTX money was just abandoned by creditors who didn't want to file the paperwork. couple of billion dollars at least.
what more do you need to know?
Yep
what a crock of utter horseshit lmao
Not just your humble opinion, it's a demonstrable fact.
Oh damn, a new "brand" of spam bot. Begone spam bot.
Except they did get rid of half IRS inspectors….the odds are pretty good if you wanted to dance in the shadows of tax evasion, if not avoidance
One of the great newsletters to follow.
Every week at the market I watch my husband (and best friend) buy two Powerball and one state lottery ticket, and for the rest of the week listen to any number of things he would like to do if he (ever) got a substantial payout. He spent a good portion of his life in council housing in Scotland, where the lottery is a universal thing, like having fish and chips on Friday. So I 'forgive him,' sorta. It's actually cheaper than going to the movies, much less a ball game. Especially if you throw in peirogies. But from my sad, grown up perspective I sit with the knowledge than we have a few million to one chance of winning one plug nickel. And I can't help thinking that crypto is like the lottery, but worse, because buyers put so much more 'real money' into it, and are supporting criminals when they do. Ah, me.
It's very true, bookies thrive in poorer areas.
My first exposure to a State lottery was in South America in the 60's. It was a bit of a cultural shock because in the US gambling was considered an addictive vice and was illegal. When I asked my host about how the government justified promoting the vice, he answered "Oh, it is just the way we get the poor to pay taxes". I've since always associated State lotteries with "banana republics".
One 'tell': you don't see any rich folk lining up at the lotto counter! :(
That's a very astute observation, if I may say so.
Banana republics? I'm not sure about that. I do know that state lottery in Germany is older than Germany, to wit: Prussia declared a state monopoly on lotteries in 1736. Prussia was certainly not a banana republic, if only because it wasn't a republic :-)
Gambling is a tax on people who didn't learn statistics in school.
Wow; Now that's a tell John.. thanks
buying a lottery ticket at least gives the person some hope no matter how small it is
that your dreams could come true with a little luck and a small investment.
without the chance at a big payout most people don't have much hope that their dreams will come true. it gives you a chance.
I think that's exactly what it is, although it can be dangerously addictive. Sadly many poor people who win the lottery go bankrupt in a few years as they have no idea how to look after money.
It gives you a chance to daydream.
Not really. Lottery buyers are hundreds of times more likely to get run over by a bus than they are to win a lottery jackpot. There are few things you can be more certain of than the belief that the lottery ticket you just purchased will not win a substantial payout.
My understanding is that the probability of winning the lottery is equivalent to that of getting hit by lightning. But you gotta be in it to win it!
I always say where else can you buy hope for a dollar?
You and my husband think alike!
You can be delusional for no money at all, and the lowlifes the states hire to run their lotteries will have to find somd other way to make a living.
This is what bothers me. Instead of a numbers racket preying on the poor, the state is doing it. There is a real risk of gambling addiction, either a new addiction or an additional one. (I am a retired addiction specialist.)
Tinder?
Buying a lottery ticket has NONE of the downside that crypto has. It doesn't become a gambling problem either. There's a moment of hope yes, but this is benign.
At least most of the ticket money goes to the public schools, here in PA. But if you ever saw the folks feeding the scratch off machines you might alter your stand about whether or not there's at least some signs of a gambling problem there. But agreed that crypto is a horse, or maybe rhinoceros, of a different color.
I don’t know thd details but I doubt that it’s “most “ there is a substantial administrative cost.
Why do you suppose we never hear any transparency regarding those administrative costs Rex ? I have my suppositions, but I'd sure like to know yours.
I have no idea, but you’re right that the lack of transparency looks suspicious. The history of people running gambling operations includes a lot of unsavory characters, so transparency, you’d think, would be important to a government-sanctioned gambling operation. Plus, the promotion of scratchers and other immediate-feedback “games” puts the whole thing a sinister context.
Interesting ....that's what I've heard was used to get riverboat gambling legalized here years ago--the same bs was used to pass internet gambling here recently.
Two sides to a coin: Appreciate the power of marketing to sell hope for a buck and one more chance to lose.
Making 'prey' of fellow humans ?
One of the original justifications for crypto was that it provided a form of currency completely decoupled from any government. Now that the pyramid scheme looks to be topping out, the only salvation for those at the top is to convert crypto into something backed by government. And yet not controlled by government.
I see no possible positive outcome here. I think crypto will inevitably collapse, and taxpayer will be forced to bail out the criminals behind it.
The problem of decoupling currency from a government is recourse, or a lack thereof! Crypto has no regulators and no transparency. The investor does not know at any moment what the capital standing of the issuer is.
Are the solvent or in the red? Have they issued more currency than the assets on hand to back it?
This is the stuff that the OCC, Office of Comptroller of Currency and State bank regulators look at.
In short with crypto, be it BitCoin or StableCoin, you are throwing your money into a black hole where there exists no transparency or accountability. You have in essence given funds to a mobster who may not elect to give it back. You have no recourse, only the 'word' of the monster.
My fear is that we will be forced to use it--like they are trying to force us to pay electronically hooked up to our bank accounts, use our phones for parking to track us electronically....the Pay Pal mafia used DOGE to get our info and now Palantir is getting the contract to combine our info across all federal (state?) agencies. What did those dimwits who have quit their jobs at DOGE/Palantir due to their "conscience" think this was all about when JD Vance was shoehorned into the vice-presidency?
That's how I see it Jenn, and more justification that we need shout and insist there be no bailout - regardless who it harms.
The price of bitcoin has already collapsed several times. The SEC under Gary Gensler was going after unlawful crypto companies, but crime is legal now.
Crime is legal now, but may soon be mandatory!
Now there's an unpleasant thought.
Sad!
This is another MUST-READ from fabulous Paul Krugman.
Americans need to protect their currency and their institutions from the crazy thugocracy that Trump is installing. Bringing crypto into the financial system is a critica form ofl endangerment.
The only god(s) of this theocracy is themselves.
I think you're mostly right, except that the decoupling from government means decoupling from any government, that is to say taxpayer, bailouts.
Which is why the crypto bill is going to be disastrous. The crypto currencies will still be completely out of any government's control, but now the United States government will be forced to bail out the crypto criminals, handing over real actual dollars to replace the Monopoly money that was their crypto assets when crypto inevitably collapses.
Yeah, this will be the next big financial crisis. It’s hard to see this coming, but be powerless to do much about it. I’ll write my congressperson and senators but I’m sure their minds are already made up so I’ll have little impact. Party drives (most) voting now, not common sense, knowledge, representation, or any other noble reason. Sad!
All too true. That bill is atrocious.
The assumption being, of course, that the government is bad. True for crooks and MAGA.
Like bailing out the banks, I feel 'we' should just 'insist' no this time.
For anybody who hasn't read it yet, https://www.nytimes.com/2025/05/28/opinion/ezra-klein-podcast-zeke-faux.html is a detailed and very comprehensible examination of the Trump family's crypto plays.
Cryptocurrency, in brief, is a way that anybody anywhere in the world can put money into someone else's pocket, anonymously and untraceably. Except that a sender who WANTS the recipient to know who gave the money can prove it, privately. If you were trying to design a system to encourage bribery of government officials, you couldn't do a much better job.
People are putting money into the Trumps' pockets in at least four different ways:
(1) directly transfer money into their "digital wallets" as a gift,
(2) buy crypto-assets (such as $TRUMP and $MELANIA memecoins) from which the Trumps receive a transaction fee,
(3) buy Trump-issued stablecoins, which even if 100% backed by real dollars constitute an interest-free loan to the Trumps (which they presumably invest and keep the income therefrom), and
(4) buy floating-value assets that the Trumps are known to already own a lot of, driving up their price and thus making the Trumps richer.
What do they get for all this? Access, dinner with the President, pardons, government contracts, deregulation of crypto itself.
Klein and Faux point out that floating-value cryptocoins like Bitcoin, as the quintessential "fiat currency", have become largely a Ponzi scheme: the first people to buy in are now astoundingly wealthy, and the second tier of buyers are fairly wealthy, but the pyramid has now expanded to millions of people and (like all Ponzi schemes) is in danger of running out of new money. Where else could you get new money? From the US taxpayer: just convince the President of the United States to order the Treasury to buy many billions of dollars' worth of Bitcoin, and the price will keep going up, making those who already own it much richer. The Bitcoin people are completely open about this: they say in so many words that the point of getting US government investment is "Bitcoin goes to a million". But as always, when a Ponzi scheme collapses, the last group of investors lose their shirts, and this time that'll be the US taxpayer.
Crypto mining also uses up a lot of electricity.
If we ever get an independent Attorney General, Secretary of the Treasury, or Secretary of the Interior again, or perhaps a group of Congress members with imagination and determination, it may be possible to at least recoup what Trump is putting into his and his family's pockets by these means of selling the asset of access to the President. A well-established legal principle is that if something of value is obtained by improper means, it is held as a constructive trust for the benefit of the rightful owner. In this case that would be the treasury or interior department of the U.S. Someone with standing as a representative of the rightful beneficiary can sue to have ownership transferred to that rightful beneficiary.
The problem is that most of the methods Klein and Faux describe for slipping money into the President's pocket are perfectly legal in themselves -- and if they weren't already, he's changing the rules to make them legal. The only thing "improper" is using them to bribe a public official to serve your interest rather than the public interest.
I am lat getting on discussion, so please forgive me if the following minor observation has already been made.
There is one other legitimate use of crypto currency--possible increased security from theft. It is more difficult for thieves to rob the currency than to steal cash, especially that carried on ones person, or invade a credit or debit card or bank account. On the other hand, people are known to lose their crypto account i.d. and thereby lose all they have deposited in the account. Also, depending on how the holder stores that information, I assume that some have also had crypto stolen in much the same way credit and debit card passwords have been stolen.
And therefore people with big crypto wallets are being kidnapped and tortured to force them to turn over their crypto.
There is no private solution to crime, because without the state, there is only barter and banditry.
Thanks for explaining crypto. I finally understood a bit of it. However, to me the worst feature of crypto is how it has solved the kidnapper's (or extortionist's) dilemma: how to get paid without getting caught. There seems to now be a vast industry of extortionists attacking small companies and other institutions with ransomware. Usually, the victims simply pay up in crypto to make the problem go away. And the extortionists go away with their untraceable loot. And we usually don't hear about it because the victims want to protect their reputations for safety.
Yes. The victims of ransomware pay up. But where does the money come from? It comes from lost business, lost sales, and the shattering of dreams. Take away crypto and you not only take away ransomware, you also take away romance scams, pig butchering, and sextortion.
i don't understand all the workings of crypto currency but Paul says that the only thing you can buy with crypto is other crypto so i don't see how you can make a profit in real money
by only using and selling fake money? maybe someone can explain that better.
I think he unintentionally overstated the case with respect to your focus here. You can also buy dollars with crypto, at the market rate. Really you’re selling your crypto to someone else for dollars. Or Euros. Or whatever. From the perspective he is focused on, which is their use cases, you cant buy anything with crypto. He is focused on the purpose of crypto, and the only useful purpose is concealment, which serves only criminals. Note that its ability to be converted to actual useful currency is an integral part of the criminal use case.
The value of crypto in dollars, fluctuates wildly.
Yep. Sure does.
I believe you can trade crypto for real dollars. The price fluctuates wildly, but you can cash out.
I actually dipped my toe in the market of bitcoin purchasing through Robinhood. You buy and sell exactly like any other trade. Buy low, sell high. I got out of this trading quick when Trump took office. Its very dicey and I didnt have the stomach for it. Very much like gambling.
Yes. Very much like gambling. In fact, I don’t know how you would distinguish it from gambling.
Yes
... cash out - Until the whole pyramid collapses.
You can sell your Bitcoin for cash on exchanges like Coinbase. You can also buy Bitcoin as an ETF so you don't have to worry about maintaining private keys — in other words, be your own bank. You can also buy your casino chips by investing in Microstrategy.
If you own BTC, you need a keep track of your private key. It's like a passcode that allows you to access the crypto. Lose your key and you lose your BTC. (You can read stories of people trying to locate their hard drives in dump sites after the price of BTC went up.) An ETF (exchange-traded fund) is a security that tracks the performance of BTC, so you are not actually holding the crypto.
A friend of mine bought me .5 BTC as a sort-of-novelty gift for my birthday circa 2013. He gave it to me on paper Bitcoin.. I held on to it for a while, then found it in a drawer one day and tried to figure out how to use it. I gave up after a few minutes and just tossed it out 🤦
Tether (stablecoin) was launched in 2014, and that's when the price of BTC started to climb. Tether has never had a proper audit
The Big Bang Theory did an episode on a lost crypto key.
The most interesting thing about Bitcoin is the price, which is easily manipulated. Even when you are trading a Bitcoin ETF, it's important to remember that the actual price of BTC is determined by trading in unregulated offshore exchanges, where crypto is bought and sold for dubiously-backed stablecoins. The lure of crypto has always been "get rich for free."
Krasnov can transfer US wealth to Russia while holders of short term US securities get 100 year non-interest bearing bonds. He keeps mentioning Ft Knox and abolishing the FDIC for a reason.
There are exchanges you can use them to move usd into and out of traditional banks. Exchanges act like a Schwab account for crypto. Paul is mostly right but i can think of two use cases for stablecoins.
Marcus, please elaborate on those two legitimate use cases. I am interested in understanding this better.
First would be to send money across borders. You can 1. buy a stable coin on an exchange. 2. send it to recipient's/your wallet 3. recipient sends it to an exchange in their country. 4 sell stable coin on their exchange and then send currency to their bank in home country. All of this can be done pretty inexpensively and relatively quickly depending on what you use.
Second would be to hedge against USD. STBLREUR is a euro stable coin that has some regulation associated it with it. You can buy it on US exchange and hold it in your wallet or on the exchange. As the Euro fluctuates your conversion back to USD does.
Holding a stable coin has counterparty risk. Holding it on an exchange has even more because now the exchange can also fail etc. To me this would be analogous to buying currency ETFs but maybe safer. As those have lots of counter party risk associated with them. If the stable coin has true reserves then your only risk is sovereign theoretically.
The Senate bill had me earnestly look into this really for the first time. The space is so full of scams I just waved it off. For it to be widely adopted some changes will have to be made. You can screw up and lose all your money by making a simple mistake so the barrier is pretty high for people to use it safely and effectively. All of this is IMO ofc.
Sending money across borders is only difficult if currency controls are in place. And if you're using crypto to circumvent currency controls then you're breaking the law. So case 1 isn't really an example of a legal use case.
If you hold a stablecoin on an exchange then you don't actually own it. There is no insurance like with a brokerage account. So if the exchange goes belly up you can lose it. Like happened to SBFs platform (he went to jail). if you put it in your wallet the coins value is still dependent on the quality of the reserves. Each stablecoin is backed up by some sort of reserve. For something like USDC it could be treasuries, it could be cash in a bank it could be other stablecoins. Generally from what I have read if it is other stablecoins it is small % (which that in and of itself is concerning) That cash held in the bank is not FDIC insured. So if bank goes belly up , think Silicon valley bank (SVB) that money in reserve is put at risk. I think the rest you can fill in the blanks. Hope that helps.
There’s a big benefit to stablecoins that you omit: the issuers of stablecoins make oodles of money for doing little work and taking little risk because they earn interest on their Treasury bond holdings but don’t pay interest on the stablecoins that their customers hold.
They will probably engage in leverage to get even higher returns. They will be operating a bank, but they may not be satisfied with Treasury interest rates. That’s when the backing gets risky.
Good point!
In his book "Number Go Up" Zeke Faux says he believes that Tether is issuing more stablecoin than they have reserves to back them up with. They do this by "lending" rather than selling coins. Tether has never been audited and they are secretive about how exactly their reserves are invested.
If this is true then they're basically the same as the wildcat banks.
Another thing to keep in mind - crypto is an environmental disaster that siphons up huge amounts of energy! I don't quite understand how it all works, but there are computer banks going up that use more energy than entire towns next to them. They run hot and need lots of air conditioning, which makes them loud nuisances for people living close by as well!
And these huge draws of electricity present instability to the physics of the electric grid. Example… dropping huge load drives up system frequency, causing frequency related protection breakers to trip, causing more instability, causing cascading trips. Bad.
Exactly. There is NOTHING good about crypto.
Professor Krugman: thank you for the history of money/banking lesson along with your cautionary note about crypto. i've long been concerned about how crypto resembled organized gambling, but your piece outlines how all these things tie together and how they exist to harm people. why are our congresscritters not listening to their experts? (i assume they HAVE ACCESS to several experts on any particular bill they are asked to vote on?)
They are not listening because of the huge amount of money the crypto people spent during the election on both Republicans and Democrats. We now have a bought and paid for government that will sell any part of our country such as public lands.
The old definition of an honest politician is one who stays bought.
Not only does crypto put us all at risk for financial collapse, it and its cousin AI are huge new consumers of power demand. Instead of limiting and reducing our carbon use we’re ratcheting it up to make huge transfers of wealth to those who are already rich.
Let's be honest, tRump and his tRump Organization have always been New York mob boss/mob. It is far darker than the 'Elect a clown...' meme. Crypto is doing a booming business right now because our Mob-Boss-In-Chief is using it to rake in all of his graft and grift. Since it is anonymous, I think is safe to say he is not paying taxes on all this crypto largesse he is receiving. Maybe we should all be sending this explanation on to our Congress Critters.
He used to brag that he never paid taxes.
As nearly as I can tell, he meets the entire definition of a parasite.
They're not just stealing dollars they're stealing the dollar.
How so? Dump it bills drives inflation?
they drive the value of the dollar down, replace it with crypto. simple as that.
I don’t follow your thinking. Doesn’t mean I disagree. I just don’t understand.
Donald is always doing lots of things which look crazy to me and many others.
It seems that the only consistent thread through Donald's craziness is that it probably ends benefiting himself or his close associates/family.
I fully expect Donald to saddle the U. S. Treasury (or some part of the government) with huge stakes in crypto or stablecoin or both. The American taxpayer will take a financial bath, but Donald and associates will make billions.
I still find it hard to figure out why the American electorate picked a con man and serial grifter/mob boss for President this past November. I have heard and read all of the explanations but still find it unbelievable.
Thanks to Professor Krugman for his explanation of crypto, tariffs, and economics.
Americans had a choice between Harris, annoited by Biden, or Trump. No primary for the Democrats.
Right. Biden and Harris are not my favorite candidates. But either one would have done a lot less damage to the country than Donald is/will do. If Harris had been elected, it would have been pretty much a continuation of the Biden administration.
People say that she is a radical, but what could she have done. Congress is divided and dysfunctional so she could not pass laws or institute new programs. If she had issued an executive order a right-wing group would have gone to Texas and filed a lawsuit to stop it.
It seems to me that many voters said, "I hate Biden, Harris, and transgender children so let's turn the country over to Donald so that he can burn the place down and ruin the economy."
Yes. The Democrats betrayed its supporters out of fear - instead of understanding what they had to fear was fear itself.
I have a friend in IRS-CI, the main agency tasked with ferreting out crypto scams, & he thinks the Trump administration is preparing to do away with the whole business unit. It does make sense, given that trump has pardoned a TON of tax cheats. Thats thousands of man hours on meticulous casework flushed down his golden toilet.
That’s sounds quite plausible.
A major stablecoin CEO defends them as being useful for:
1. Evading capital controls (eg in China)
2. Dollarization of unstable economies (eg in Argentina)
3. B2B transactions across national/currency borders in Europe
Note that all 3 of those are technically illegal, or at least dubious.
Source: https://open.spotify.com/episode/1sDyiTizXXP7CC7saWLHCY?si=IfRxO3FQSFGCKd1NiO35Iw
To which I would comment: hasn't he heard of the Euro? But also, more importantly, they can be used to de-dollarise currencies that are being slaughtered by the US government's economic policies.
Only about half of Europe is on the Euro, so this would be cross-border. The stated advantage of using stablecoin was to speed up the value transfer across borders by bypassing banking controls, but I'm just amplifying a technical podcast, I'm not an expert.
You would have to use a Euro-stable coin of some sort if you want to de-link from the dollar. Or some other currency that allows for unlimited investment by "anyone"
More than one way to skin a cat...
As for speeding up - it's more an issue that Swift generally remains slow and expensive. If you are operating across European borders the likelihood is that your on- and off-ramps will require you to be KYC'd and AML'd, so you are unlikely to be able to "get away" with things that are not allowed under banking regulations.
China does not allow crypto currency, so how do the Chinese evade capital controls through it?
Money for nothin' and...
ITS A SCAM!!!