- Raghuram Rajan compared the recent mania in the crypto space to the Tulip mania of the seventeenth century.
- He also spoke about how the regulators have been finding it really difficult to deal with the booming sector.
On Wednesday, November 24, the former governor of the Reserve Bank of India (RBI) – Raghuram Rajan – said that only a handful of the existing 6000 cryptocurrencies in the market will survive in the future.
The comments came just at a day when reports emerged about the Indian government planning to ban private cryptocurrencies. On the same day, Bitcoin (BTC) and other major cryptocurrencies corrected more than 10 percent on Indian exchanges. The government will introduce the bill next week on November 29 during the winter session. The lack of clarity has created major confusion among Indian crypto investors.
In an interview with CNBC TV-18, Rajan said:
If things have value only because they because they will be pricier down the line, that’s a bubble. A lot of cryptos have value only because there is a greater fool out there willing to buy.
With this view in place, the former RBI governor also compared the current mania in crypto markets to the Tulip Mania of the 17th century in the Netherlands.
Rajan believes that people hold cryptocurrencies for only two major reasons – assets whose value rises in the future or for use as payments. Putting an additional question about it, Rajan said: “Do we really need 6,000 cryptocurrencies to do payments? One or two maybe a handful, are going to survive to be used as payments even if the technology is so useful that it is a substitute for cash and currency.”
Raghuram Rajan cites concerns around regulations
The lack of regulatory clarity for digital assets has been a cause of concern for investors across major global economies. Rajan said: “In the US, crypto is a $2.5 trln problem that nobody really wants to regulate”.
Rajan further said that the problem has been the lack of understanding of the space. He said that even regulators are confused about regulating cryptos. Citing a reasonable approach for regulators, Rajan explained:
What governments can insist on is getting information from crypto entities, when crypto entities get too big, government can examine them more closely to ensure there isn’t fraud. This is a situation where at best you can send warnings to the broader public
But Rajan also believes that the Indian government should allow blockchain, the underlying technology of cryptocurrencies, to flourish. He also talked about the benefits of blockchain for instant cross-border transactions at a low cost.
India is currently home to more than 400 crypto startups offering users different services within the crypto ecosystem.