Re: Will crypto lead to the next financial crisis?

Looking at the past financial crises that happened, they all seem to have a few things in common, such as the mass adoption of a new financial product or technology (e.g. mortgage backed securities in 2008, dotcom boom in 2000). Given the extent to which institutions (and some influential figures) have been manipulating crypto recently, do you guys think this narrative is likely?

I don't think that there is a lot risk coming from crypto currencies to be the root of evil of the next financial crisis. We have been in a zero interest rate world for more than 10 years already. This interest rate makes loans so cheap which is making huge messes in the financial world. Everybody can get a loan for almost free right now which made real estate very expensive. Buying an apartment or house right now will put us in debt for the next 30 years. I think we will see another crash in the real estate bubble.

As of now there isn't even a slight chance for cryptocurrencies to become the root of evil for the next financial crisis. Maybe if the overall market capitalization of all cryptocurrencies is above $5 trillion, we might slowly perceive cryptocurrencies and a potential massive crash as a systemic risk. Right now cryptocurrencies can't really do much in terms of initiating a financial crisis. Other markets are way bigger, riskier and way more dangerous to global financial stability. Just look at the housing market and the price explosion in real estate facilitated with newly printed money. Bubble?

The way the financial systems are linked and the massive use of leverage, small problems can quickly snowball and become systemic. That's why you're seeing Janet Yellen start to talk about the risk posed by cryptocurrency because it's completely unregulated and operates in the dark. Nobody knows if or how big of a problem crypto could spark, and that's a problem.

There is some truth to what you are saying, but there is also a difference between fiat money where you can create 9 dollars of inexistent credit money for every 1 dollar deposited in a bank account and cryptocurrencies where a bitcoin is a bitcoin, no matter what. You can trade crypto with leverage here and there, but you can't create a legal bubble like you can with fiat. What you can do is pump up bitcoin with printed Tether, but that can't be legal unless there is a real dollar (which in essence is a fake dollar) for every single USDT printed on the blockchain.

It's not "inexistent credit money." The vast majority of loans in the fractional reserve system are productive loans, meaning they're made to support new economic activity. As long as that's the case, the new economic activity created by the loaned dollars justifies the expansion of the money supply. This is why the system works. If it didn't work, we would see constant bank failures and the system would have collapsed long ago. But it endures because it works. The criticisms against it you levied are common among people who don't understand it.