India has made no secret of its position on cryptocurrency. The nation believes crypto to be a dangerous bet and, according to its Reserve Bank’s Governor, the likely cause of a future catastrophic financial event. Does that mean apps like CoinBase are the problem?
Shaktikanta Das, the Governor of the Reserve Bank of India, has stated that he believes crypto to be a huge risk to the macroeconomic stability of the nation. In a room full of high-ranking executives in India’s banking world, Das said that ‘After the development of the last one year, including the latest episode surrounding FTX, I don’t think we need to say anything more. Time has proven that crypto isn’t worth what it’s worth today.’
Das argues that the organic changes in the value of products and services stem from the market, and determining value is the market’s function. He asserts that crypto is dangerous because of its independence from the market. It is Das’s position that crypto is a threat to economic stability because its value isn’t determined by the market, which determines the value of other currencies. Instead, cryptocurrency is like an outsider that has the agency to determine its own value.
‘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.’
The core idea behind cryptocurrency was to create a way for people to transact without relying on pre-established financial systems. Crypto was designed to subvert existing financial systems and escape regulation.
‘They don’t believe in the central bank; they don’t believe in a regulated financial world. I’m yet to hear a good argument about what public purpose it serves. It should be prohibited because if it is allowed to grow … say it’s regulated and allowed to grow … please mark my words that the next financial crisis will come from private cryptocurrencies.’
These concerns are not baseless. Crypto does sometimes appear to be a ticking time bomb with the ability to wipe out vast swathes of the population, at least, financially. We need only look at the recent FTX scandal to see how detrimental this situation can become at the drop of a hat. The biggest issue is that crypto is touted as a way for everyday citizens to get rich quickly.
However, once these people have invested all their life’s savings into a particular cryptocurrency, what underlying principles prevent the currency from tanking in value or a broker from running off with all their cash? Nothing.
Crypto isn’t grounded in anything solid. It isn’t backed by anything. At best, it’s a risky investment opportunity, and at worst, it’s a financial trap waiting to collapse.