Former Reserve Bank of India (RBI) Governor Raghuram Rajan said that the collapse in prices of digital assets over last year will allow investors to focus on the ‘true value’ of this technology, the distributed ledger and the smart contracts that can be built on them.
"The idea that somehow cryptos are going to maintain value, while the fiat currencies collapse. That's nonsense," said Rajan to Reuters on the sidelines of the World Economic Forum at Davos.
The economist said that fiat currencies have won out in terms of which is more credible.
Rajan’s statements come in the backdrop of the crypto market shrinking by $1.4 trillion in 2022, with Bitcoin losing 60 per cent of its value. However, it has clocked a 26 per cent gain in January, breaking above the $20,000 level. Cryptocurrencies not only tanked, but also took a credibility hit when exchange FTX that was valued at $32 billion a year ago filed for bankruptcy in November. Founder Sam Bankman-Fried was accused of orchestrating an epic fraud by the investigators.
The former RBI Governor had earlier cautioned investors about the shelf life of cryptocurrencies. In an interview in 2021, Rajan had warned that only a handful of the 6,000-odd cryptocurrencies in existence then would survive in the future.
He said cryptocurrencies are held for two reasons – store of value and an asset that might appreciate, and for use in payments. “One or two, maybe a handful, that are going to survive to be used for payments even if the technology is so useful that it is a substitute for cash and currency…That would suggest that most cryptos are unlikely to survive with high values going forward,” Rajan had said.
In yet another interview from 2022 to The Economic Times, months before the FTX debacle, Rajan had said that cryptocurrencies do not have stable values. “You see Bitcoin go up 20 per cent, come down 20 per cent, sometimes large moves on the same day. So the notion that these are stable forms of payment relative to the fiat currencies, the central bankers cannot be trusted but this crypto can be trusted belongs to a small minority of people.”
(With agency inputs)
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