Reserve Bank of India governor Shaktikanta Das said this week that allowing private cryptocurrencies to grow would lead to the next financial crisis. He also reiterated the central bank’s call for a total ban, claiming that such instruments had no underlying value and were speculative at best.
“After the development of the past one year, including the latest episode surrounding FTX, I don’t think we need to say anything more. Time has proven that crypto is worth what it’s worth today," Das said at while speaking at the ‘BFSI Insight Summit’.
“Change in value in any so-called product is the function of the market. But unlike any other asset or product, our main concern with crypto is that it doesn’t have any underlying whatsoever. I think crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100% speculative activity. I would still hold the view that it should be prohibited. If you try to regulate it and allow it to grow, please mark my words, the next financial crisis will come from private cryptocurrencies," he said.
At the event, attended by banking executives and lawmakers, the RBI governor once again said cryptocurrencies had significant inherent risks in terms of macroeconomic and financial stability. Earlier this year, union finance minister Nirmala Sitharaman had also said the biggest risk of cryptocurrency in the midst of the pioneering fintech revolution could be money laundering and its use to finance terrorism.
“I think regulation using technology is the only answer. Regulation using technology will have to be so adept, that it has to be not behind the curve, but be sure that it is on top of it. And that’s not possible. If any one country thinks that it can handle it. It has to be across the board," she had said at a seminar during the spring meeting of the International Monetary Fund.
More issues in 2023!
Das earlier described cryptocurrencies as a “clear danger" and reports also showed that with crypto’s popularity, related issues are also rising. For example, Security Endpoint Threat Report 2019 by Microsoft stated that crypto mining malware assaults affect web users in India at a rate that is 4.6 times greater than the regional and worldwide average. In the Asia Pacific region, India has the second-highest number of bitcoin mining assaults, after only Sri Lanka, as per the report.
Sunil Sharma, managing director (sales), India & SAARC at Sophos, said crypto-related scams will increase in 2023. “The devaluation of Monero, one of the most popular cryptocurrencies for crypto miners, led to a decrease in one of the oldest and most popular types of crypto crime — crypto mining. There is also a rise in crypto-related mobile apps in the form of fake wallets that are used to scam investors. Additionally, crypto-related scams are continually shifting and mutating, swinging from fake cryptocurrency investment to fake crypto derivative investments, and into other fake financial markets," he said.
Considering the threats, Dr Pavan Duggal, a Supreme Court lawyer and a well-known cyber expert told News18 earlier that India needs to come up with effective legal frameworks to deal with such kinds of emerging cybercrimes.
Industry’s view
After the recent statement on crypto and the possible financial crisis by Das, one of the industry insiders Vikram Subburaj, CEO of crypto platform Giottus told News18 that RBI’s continued reluctance to assess crypto as a fair investment vehicle of the future is disappointing.
“Crypto has evolved since its inception and is mass adopted in certain growing economies and in large, regulated nations such as the US. A natural evolution of the product to support ETFs etc can protect the investors better. The next few years will see true innovation in all aspects and we would love India to be a part of this change," he said.
In terms of scams and regulations, Subburaj said scams happened in every industry, including banking and tighter regulations, can only help to weed out the bad actors and prevent scams like FTX from happening.
He added: “RBI must consider the fact that the Indian crypto ecosystem has been highly compliant so far in spite of lack of clarity on certain aspects."
Another expert, Punit Agarwal, founder of KoinX, said 2022 has been a rather interesting year for the crypto industry and the global economic sector in general. “With such promising advancements, we also seem to run into obstacles, particularly with the latest statement from the RBI governor, considering a ban on crypto overall because of the ‘supposed risk’ it poses on a macroeconomic level. While the industry isn’t new to this kind of opposition, a notable observation is the lack of strength of the crypto industry right now, which is just a mere consequence of the downtrodden global economy at the moment," he added.
Agarwal believes that Web 3.0 brings with it a plethora of new opportunities and technological advancements. “Web 3.0 introduces numerous opportunities and technological advancements. We have witnessed 450+ Indian Web 3 startups, 4+ unicorns, 70+ institutional investors, and more than 1.3 billion total investments made by Indian startups in the industry," he said.
“Even though the market isn’t the best right now, that doesn’t mean that we won’t be witnessing that in the future, especially considering how much mainstream attention we garnered this year! For starters, maybe it can all begin with regulating the entire industry," the industry insider said.
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