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Top economist Mohamed El-Erian says crypto is a canary in the coal mine for an era of ‘irresponsible risk taking’—and the fallout could lead to ‘financial accidents’
Top economist Mohamed El-Erian says crypto is a canary in the coal mine for an era of ‘irresponsible risk taking’—and the fallout could lead to ‘financial accidents’
Mohamed El-Erian is worried that crypto’s risk-taking behavior is just an example of what became the norm over the past decade.
Crypto investors have collectively lost $2 trillion since November of last year, and the list of casualties in the ongoing Crypto Winter continues to grow.
The downturn was only compounded by the collapse of the world’s second largest crypto exchange, FTX, which went bust last month, leading to accusations that its former CEO was running a “Ponzi scheme”—which he has denied.
Now, Mohamed El-Erian, president of Queens’ College at the University of Cambridge, is warning that the lack of risk management seen in the crypto space might be a canary in the coal mine that has broader economic implications.
“What if the irresponsible risk-taking that we see in crypto was also taking place elsewhere…and that crypto simply happened to be the structurally most fragile of those cases?” he asked New York Times reporter Ezra Klein in a Friday interview.
El-Erian believes that crypto’s dark days aren’t yet a “systemic” risk to the financial system or the broader economy, but says there are signs of distress everywhere including the near-collapse of the U.K. gilt market and emerging market debt crises in places like Sri Lanka.
“What I worry about…is that they are simply canaries,” he told the New York Times Friday. “These are little fires, but the risk here is that these little fires start spreading and start becoming something bigger.”
