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Former Federal Reserve Chairman Alan Greenspan says crypto is \u201ctoo dependent on the \u2018greater fool theory\u2019 to be a desirable investment.\u201d However, he noted that the collapse of crypto exchange FTX was \u201cpurely fraud,\u201d rather than the result of a feature inherent to crypto. He does not expect the FTX contagion to spread far beyond the crypto space. <\/strong><\/p>\n Former Federal Reserve Chairman Alan Greenspan shared his views on cryptocurrency, the collapsed crypto exchange FTX, and the U.S. economy in a year-end Q&A published by Advisors Capital Management this week.<\/p>\n Greenspan served five terms as chairman of the Board of Governors of the Federal Reserve System from 1987 to 2006. He was appointed chairman by four different U.S. presidents. He joined Advisors Capital Management in September 2016 as Economic Advisor to the asset management firm.<\/p>\n The former Fed chair was asked to comment on the FTX meltdown and whether he expects contagion from it. \u201cI do not expect the fallout from FTX to spread beyond the cryptocurrency\/NFT [non-fungible token] space,\u201d Greenspan replied, citing \u201cthe information that has come to light so far.\u201d He stressed:<\/p>\n The collapse of FTX was not a result of lax risk management, inadequate accounting procedures, or some feature inherent to crypto \u2014 it was purely fraud.<\/p>\n<\/blockquote>\n \u201cFortunately, although FTX and firms like it have increased marketing of their products in recent years, the lack of any noticeable widespread market reaction to FTX suggests that they are still fairly concentrated in the hands of a relatively small subset of investors,\u201d Greenspan described.<\/p>\n \u201cMoreover, the differences we observed in the aftermaths of the popping of the tech bubble and the popping of the housing bubble showed clearly that credit-fueled asset bubbles create far more contagion when they ultimately deflate,\u201d he opined. \u201cThere does not appear to be a significant amount of leverage dedicated to the cryptocurrency\/NFT space at this time, so I do not expect contagion to spread very far beyond this particular asset class.\u201d<\/p>\n The former Federal Reserve chief added:<\/p>\n With respect to the wider crypto universe, I view the asset class as too dependent on the \u2018greater fool theory\u2019 to be a desirable investment.<\/p>\n<\/blockquote>\n Greenspan also shared his view on the U.S. economy and the Federal Reserve\u2019s fight against inflation. Commenting on whether a recession is required to bring down inflation as some economists have suggested, he said:<\/p>\n A recession does appear to be the most likely outcome at this time.<\/p>\n<\/blockquote>\n However, he does not believe \u201ca Fed reversal that is substantial enough to avoid at least a mild recession\u201d is warranted. \u201cWage increases, and by extension employment, still need to soften further for a pullback in inflation to be anything more than transitory. So, we may have a brief period of calm on the inflation front but I think it will be too little too late,\u201d Greenspan concluded.<\/p>\nAlan Greenspan on Crypto, FTX, and US Economy<\/h2>\n
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