Reserve Bank of India (RBI) governor Shaktikanta Das, while speaking at an event today, said the next financial crisis will happen because of private cryptocurrencies if they will not be regulated. “We firmly believed that crypto has absolutely no underlining value. They have huge inherent risks for macroeconomic stability and we have been pointing it out," Das said during Business Standard BFSI Insight Summit.
The RBI governor said he holds the view that private crypto should be prohibited. "Because if it is allowed to grow, mark my words, the next financial crisis will come from private cryptos," he added.
Das cited the collapse of FTX to assert how private cryptos pose uncertainty in turbulent times. The sudden fall of Sam Bankman-Fried-founded crypto firm shocked the crypto world in November 2022. The company, until October, was considered the safest, best-run crypto exchange and a solid rival against industry behemoth Binance. "Developments over the past year, including the latest episode around FTX, have proved that crypto is worth what they are today."
Das said estimates show the total valuation of crypto was around $180 billion. "Its valuation has reduced to about $140 billion, so about $40 billion got really wiped out."
He said the change in the value of crypto, or the so-called product, is a function of the market. "But unlike any other asset or product, our main concern is that crypto does not have any underlining value whatsoever."
Das said the term "private crypto" has become a “fashionable way” of describing what is otherwise a 100% speculative activity. "There is a talk that it should be regulated but how it is to be regulated, somebody needs to explain. But I would like to raise three points -- cryptocurrency owe their origin to bypass the system to break the system, second thing is that they have no underlining value and third is that it's 100% speculative activity."
Cryptos have lost a lot of value in the past year, thanks to aggressive monetary policies by central banks globally and the dramatic collapse of digital coins such as TerraUSD, LUNA, and Solana. The fear of recession amid rising inflation and other weak macroeconomic indicators have also rattled investors’ confidence in riskier assets.
Investing in the crypto market has been painful this year, as most assets witnessed a sharp slump in prices since their all-time highs, with the total market capitalisation of all cryptocurrencies shrinking to less than the $1 trillion mark, from around $2.3 trillion by end of December last year.
Considering the volatility and risks associated with crypto, the government has called for international collaboration on crypto and tighter reforms in the country. In the Union budget 2022-23, the central government proposed to tax the gains made on virtual digital assets at 30% and 1% TDS on the transfer of cryptos to discourage transactions in crypto.
