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Leading economist Mohamed El-Erian says cryptocurrencies are the canary in the coal mine in an era of ‘irresponsible risk taking’—and the consequences that can lead to ‘financial crash’ ‘



Crypto investors lost together 2 trillion dollars since last November and the casualty list is ongoing Crypto winter continue to develop.

The downturn was only exacerbated by the collapse of the world’s second largest cryptocurrency exchange, FTX, bankrupt last month, leading to allegations that its former CEO was running a “Ponzi plan”—that he has negative.

Now, Mohamed El-Erian, chair of Queens’ College at the University of Cambridge, is warning that the lack of risk management in the crypto space could be a canary in a coal mine that makes economic sense broader economy.

“What if the irresponsibly risk-taking that we see in crypto is also happening elsewhere… and that cryptocurrency is simply the most structurally fragile in the world. those cases?” he request New York times reporter Ezra Klein in an interview on Friday.

El-Erian believes that the dark days of crypto are not yet a “systemic” risk to the financial system or the broader economy, but says that there are signs of trouble everywhere. including the near collapse of Great Britain gilded market and emerging markets debt crisis in places like Sri Lanka.

“What worries me… is that they are simply canaries,” he told the New York timeFriday. “These are small fires, but the risk here is that these small fires start to spread and start to become something bigger.”

El-Erian argues that the Federal Reserve’s near-zero interest rates and willingness support market During tough economic times, some investors have a “concept that the market is only going up”, which creates an aggressive and dangerous risk appetite.

An economist who was the CEO of Pimco said that, after the Great Financial Crisis of 2008, the banking system was strictly regulated, but the risks in the entire financial system did not spontaneously disappear.

“It has migrated. It moves from bank to non-bank,” he said. “And non-banks are less well understood by regulators, less well regulated and less well supervised.”

Bank for International Settlements warning Earlier this month, pension funds and other non-bank financial institutions owed about $25 trillion that was essentially “hidden” from regulators.

“This off-balance-sheet dollar debt poses particular policy challenges because standard debt statistics miss it,” the BIS researchers wrote. “Thus, in times of crisis, policies aimed at restoring the smooth flow of short-term dollars in the financial system are in the fog.”

El-Erian says his biggest fear is that the “financial crash” caused by reckless behavior at non-banks will “spill back into the real economy”.

“We saw how bad the world could be in 2008 for the banking system,” he said. “I don’t think it will turn out this bad, but I worry that this is yet another headwind to high, sustainable and inclusive growth. And we desperately need high, sustainable and inclusive growth.”

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