NYC, Miami Seen Facing ‘Ponzi Scheme’ Risks With Crypto Push
NYC, Miami Seen Facing ‘Ponzi Scheme’ Risks With Crypto Push
(Bloomberg) -- U.S. local government leaders, such as New York City Mayor-elect Eric Adams, should be cautious about introducing cryptocurrencies into their city’s financial systems, warned Antoinette Schoar, a professor of finance at the MIT Sloan School of Management.
“I would be so concerned if politicians start pushing blindly without understanding what is behind this term ‘cryptocurrency’,” Schoar, whose research focus includes cryptocurrency trading and its concentration, told reporters and editors from Bloomberg News in an interview Friday.
“We have no way of verifying who ultimately is doing the governance in Bitcoin, and we can’t right now guarantee you that we can prevent an attack on the Bitcoin blockchain,” Schoar said. “Once things might start falling, the price starts dropping, then really, the whole system can implode very quickly.”
Bitcoin has declined about 30% since reaching an all-time high of about $69,000 in early November. It has still jumped about 60% this year.
Some U.S. mayors have publicly embraced the use of Bitcoin as they seek to create a crypto-friendly environment to attract jobs and capital in the fast-growing industry. Miami Mayor Francis Suarez, who has vowed to take a paycheck and part of his 401(k) payout in Bitcoin, is pushing to expand the use of cryptocurrency across the city, including letting residents to pay fees and taxes in Bitcoin.
Adams has said he would take his first three paychecks in Bitcoin when he takes over City Hall in January. Crypto and blockchain technology should be taught in schools, he has said, and he would explore encouraging New York City businesses to accept Bitcoin or other cryptocurrencies.
The offices of Eric Adams and Francis Suarez didn’t immediately respond to requests for comments.
Schoar said it’s concerning that the mayors are “chasing people into a Ponzi scheme,” which could ultimately explode on the population. “We then have to decide whether we have to bail out people who got encouraged by their mayors to buy into” these schemes, she said.
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