‘Crypto is going through what most innovations go through’ - Low barriers, overproduction, and unsavvy investors are all part of ‘round one’ -Top economist Mohamed El-Erian

almost 2 years ago

YahooFinance picked up this news reported in fortune.com by Colin Lodewick. Highlights:

"With inflation at historic highs and the Fed raising interest rates as a result, risk assets are taking a hit, and crypto markets have been crashing for months.

But economist Mohamed El-Erian says that’s just part of a new technology finding its footing.

“Crypto is going through what most innovations go through,” El-Erian, chief economic adviser at financial services firm Allianz and president of Queens’ College at Cambridge, said on a Yahoo Finance livestream last week.

El-Erian says crypto is currently in “round one” of its development, characterized by overproduction and overconsumption. That happens because “you suddenly lower the barriers to entry to a certain activity,” he said.

“We saw lots of people coming in who didn’t quite understand what that crypto space really is,” said El-Erian. “They just saw prices going up and thought they would go forever, so we had a massive speculative demand.”

Things are changing now, according to El-Erian. “We’re washing all that out,” he said. “You’re washing right out the supply side and the demand side. And the hope is that you reestablish a stronger foundation, as tends to happen with innovations.”

El-Erian added that the pattern he’s observing with crypto has played out time and time again with new innovations. “That happened during the steam engine. It happened during fiber optics. It happened even during synchronization into 2000,” he said. “The first round isn’t particularly good.”

Source credit and full story - https://finance.yahoo.com/news/crypto-going-most-innovations-top-193229862.html

https://fortune.com/2022/06/28/economist-mohamed-el-erian-crypto-crash-innovation/