Eswar Prasad, a professor at Cornell University’s Dyson School, recently shared his views in an opinion piece for The New York Times (NYT), expressing concern about the growing mainstream acceptance of cryptocurrency.
Eswar Prasad is the Tolani Senior Professor of Trade Policy at Cornell University and a Senior Fellow at the Brookings Institution, where he holds the New Century Chair in International Economics. His academic affiliations extend to the National Bureau of Economic Research, where he serves as a Research Associate. Prasad has a distinguished background, having previously led the Financial Studies Division at the International Monetary Fund (IMF) and served as the head of the IMF’s China Division.
Prasad is a prolific author, with notable books including The Future of Money: How the Digital Revolution is Transforming Currencies and Finance (2021), Gaining Currency: The Rise of the Renminbi (2016), and The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance (2014). His research has been widely published in leading academic journals and has been influential in shaping discussions on global economic policy.
Prasad has provided expert testimony before U.S. Congressional committees, and his insights have been featured in major media outlets such as the Economist, Financial Times, and the New York Times. He is also the creator of the Brookings-Financial Times TIGER index, which tracks global economic recovery. Prasad continues to be an influential voice in international economics, particularly in the areas of financial regulation and the global monetary system.
In his NYT opinion piece, which was published on August 9, Prasad notes that the recent surge in Bitcoin’s value, alongside regulatory easing by the U.S. Securities and Exchange Commission (SEC), suggests that cryptocurrency is gaining traction among the public and political spheres. He points out that even prominent figures like Donald Trump and Kamala Harris are signaling greater openness to the crypto sector.
Prasad emphasizes that these developments might imply that the cryptocurrency sector is moving beyond its earlier scandals and negative associations. According to him, the industry’s advocates hope that crypto will disrupt traditional banking systems and offer enhanced access to financial services, fostering competition and resilience in the process. However, Prasad is skeptical that these potential benefits will materialize. He argues that the newfound political support for cryptocurrency likely stems more from a desire to attract young voters and campaign donations from Silicon Valley than from a genuine belief in the technology’s maturity or stability.
While Prasad acknowledges the innovative technology underlying Bitcoin and other cryptocurrencies, he highlights the paradox that has emerged as these assets have grown in popularity. Despite their decentralized design, Prasad explains that cryptocurrencies have become highly centralized, with most users relying on large exchanges like Binance to manage their assets. This centralization, Prasad warns, introduces significant risks, as demonstrated by the scandals involving these platforms, where he claims fraudulent practices and concentrated market power have undermined the original ideals of the crypto movement.
Prasad also points out that the risks associated with cryptocurrencies could spill over into traditional financial markets, particularly through the use of stablecoins. He explains that stablecoins, which are pegged to the U.S. dollar, could potentially destabilize financial markets if their issuers are forced to liquidate large volumes of assets to meet redemption demands. This risk was highlighted by the collapse of Silicon Valley Bank, which affected a major stablecoin issuer that had deposits in the bank.
Prasad argues that Bitcoin, in particular, has devolved into a speculative asset with little practical utility, noting that its value appears to be driven more by scarcity than by its usefulness as a means of payment. He underscores that the SEC’s relaxed regulations now allow even inexperienced retail investors to invest in crypto, exposing them to risks they may not fully comprehend, further compounded by political endorsements that lend undue legitimacy to the asset class.
Despite these concerns, Prasad acknowledges the progress made by other cryptocurrencies, such as Ethereum, which are more energy-efficient and capable of processing transactions quickly and cheaply. He also highlights the growing adoption of blockchain technology by traditional financial institutions, which are using it to reduce costs and improve access to banking services. Ironically, Prasad observes, these benefits are being realized by the very institutions that cryptocurrency was intended to disrupt.
In closing, Prasad cautions that while decentralized finance has exposed inefficiencies in traditional finance, it has also introduced new risks and replicated the fragilities of the established financial system. He calls for a balanced approach that includes a clear regulatory framework to protect consumers and investors while mitigating the potential spillover effects on traditional markets. Prasad urges users, investors, and regulators to remain vigilant and to be wary of the hype surrounding cryptocurrency, especially when it is promoted by political figures.
Featured Image via Pixabay