Former Federal Reserve Chairman Alan Greenspan said that crypto “depends too much on the ‘greater stupid theory’ to be a desirable investment.” However, he noted that the collapse of the crypto exchange FTX was “pure fraud,” rather than the result of the crypto’s inherent features. They don’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 views on cryptocurrency, the collapsed crypto 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 was appointed to the chairmanship by four different US presidents. He joined Advisors Capital Management in September 2016 as an Economic Advisor in the asset management company.
The former Fed chairman was asked to comment on the FTX crisis and whether he expected its contagion. “I don’t expect the fallout from FTX to spread beyond cryptocurrency/NFT [non-fungible token] space,” answered Greenspan, citing “the information we know so far. He emphasized:
The collapse of FTX was not the result of lax risk management, inadequate accounting procedures, or some inherent feature of crypto – it was pure fraud.
“Fortunately, although FTX and similar companies have increased product marketing in recent years, the lack of widespread market reaction to FTX suggests that they are still concentrated in the hands of a relatively small segment of investors,” Greenspan said. .
“Furthermore, the differences observed after the bursting of the tech bubble and the bursting of the housing bubble make it clear that credit-backed asset bubbles create more contagion when they eventually deflate,” he said. “There is no significant impact on the cryptocurrency/NFT space at this point, so I don’t expect the contagion to spread much beyond this particular asset class.”
The former head of the Federal Reserve added:
Regarding the wider crypto world, I see the asset class as relying too much on the ‘greater stupid theory’ to be a desirable investment.
Greenspan also shared his views on the US economy and the Federal Reserve’s fight against inflation. Commenting on whether a recession is needed to reduce inflation as suggested by some economists, he said:
Recession seems the most likely outcome at this point.
However, he does not believe that “a Fed reversal substantial enough to avoid at least a mild recession” is warranted. “Wages are rising, and with the addition of employment, it still needs to be softer so that inflation goes back to being more than transitory. So, we may have a period of calm on the inflation front, but I think it will be too late,” said Greenspan.
Do you agree with former Fed Chairman Alan Greenspan about crypto and the US economy? Let us know in the comments section below.
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