The latest comments of Reserve Bank of India Governor Shaktikanta Das on crypto assets have sparked a debate among economists and experts.
At the BFSI Insight Summit 2022 hosted by Business Standard, Das said the next financial crisis would be caused by private cryptocurrencies. The RBI chief has always been very critical about the digital asset class.
At the summit, while reiterating that cryptocurrencies have no underlying value and pose serious risks to macroeconomic and financial stability, he underscored that private cryptos should be prohibited.
Crypto Tracker
Market participants have a varied opinion on this. Some are of the view that cryptos, currently, can not lead to any financial crisis, but, in future they may. To eliminate the threat, more clear and strong regulations should be in place.
Mohammed Roshan, Co-Founder & CEO of GoSats, said financial crises have been around as long as currency and financial systems have existed. It might be a little harsh to blame it on cryptos.
"However, this is very much possible in time, but it can be prevented or its effects can be reduced if there are adequate regulations that can protect investors and the economy," he added.
Any financial crisis can have an impact on the crypto market just as other financial markets, but the token's market cannot be the flag bearer for the same at present, but in future they may.
Edul Patel, CEO and Co-founder, Mudrex, said cryptocurrencies alone are unlikely to cause a financial crisis since the ecosystem is still nascent compared to other financial markets.
This year has been very volatile for crypto assets as it wiped out a total notional wealth of more than $2 trillion from its market capitalization.
Investors' sentiments, wounded by the inflation and recession fears, were further bruised by the failures of projects like LUNA and exchanges like FTX, Three Arrows, Celcius, Vauld.
A financial crisis occurs when there are systemic failures in the existing financial system, which are led by multiple factors usually beyond the control.
Patel from Mudex said countries' political and economic uncertainties, excessive lending and borrowing, and natural disasters have predominantly contributed to the financial crisis in history.
Human behaviour like greed, the lack of regulatory checks, or black swan events like Covid-19 crisis, may lead to such situations, said Roshan. "It can be exacerbated by irrational or herd-like investor behaviour."
There are only 153 crypto coins with high volume that are traded in many exchanges. In contrast, there are 5,886 cryptos with very low volume that are traded in a very small number of exchanges, according to a report compiled by BitStacker.
It is unfortunate to see statements such as the one classifying all cryptos with no underlying value, while we have seen how assets like Bitcoin have been adopted by countries and institutions as a superior store-of-value, Roshan said.
Patel said cryptocurrencies drive value, based on the purpose they are designed to serve. Many other cryptocurrencies also have multiple use cases, which can contribute to their values.
"For example, the Ethereum Blockchain enables developers to create decentralized applications that support decentralized finance, and the native cryptocurrency, Ether derives its value from this use case," he added.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
FAQs
Despite their high valuations on paper, a collapse of Bitcoin and other cryptocurrencies is unlikely to rattle the financial system. Banks have mostly stayed on the sidelines. As with any speculative bubble, naive investors who come to the party late are at greatest risk of losses.
Can cryptocurrency go bust? ›
Several crypto platforms have filed for bankruptcy in 2022 and 2023. Crypto exchanges use assets to pay debts and legal fees, so customers are usually last in line to get paid.
Is crypto recession proof? ›
While not entirely recession-proof, it offers resilience compared to traditional assets like stocks and bonds. Sidechains enhance Bitcoin's utility, positioning it as a more versatile financial tool.
What do financial advisors think of cryptocurrency? ›
Advisors Are Hesitant to Recommend Crypto
The problem with this thinking is that cryptocurrencies are so volatile that investing in them while the volatility continues is essentially gambling. A better way to think about cryptocurrencies is to focus on the technology behind them: the blockchain.
Is cryptocurrency hurting the economy? ›
Many believe that Bitcoin has the potential to disrupt the financial systems governments have in place. However, it has not yet experienced enough worldwide adoption to threaten financial systems.
Is cryptocurrency going to survive? ›
Key Takeaways. Bitcoin is most likely to remain popular with cryptocurrency speculators over the next decade. Bitcoin the blockchain will probably continue to be developed to address long-standing issues like scalability and security.
What happens to crypto if the market crashes? ›
It is also certain that the vast majority of cryptocurrencies that populate the current listings will disappear. Only digital currencies that have defined business models and clear utility within mainstream society will survive a crash.
Where is your money safest during a recession? ›
Treasurys, says Collins, are similar to government and corporate bonds, as they are backed by the full faith and credit of the U.S. government. They are typically seen as safe investments during a recession. "In times of market volatility, investors may flock toward Treasury bonds, seeking stability," he says.
Is it good to have cash during a recession? ›
Cash. Cash is an important asset during a recession. Having an emergency fund to tap if you need extra cash is helpful. This way, you can let your investments ride out market lows and capitalize on long-term growth.
What is the future of crypto in the next 5 years? ›
The future of crypto in the next 5 years likely includes a vastly larger market, with increased adoption both by individuals and institutions. We're also likely to see a regulatory framework, perhaps on a global scale, that provides clarity for investors and people who use crypto to transact.
Dave Ramsey — a personal financial expert, bestselling author and founder of Ramsey Solutions, a company that educates and provides financial counseling — warns against investing in digital currency. In an article posted to the Ramsey Solutions website, the company strongly advises not to get involved with crypto.
How rare is it to own one Bitcoin? ›
1 BTC is held by a little over 1 million wallets at the time of writing. The one million milestone was first reached in May 2023.
Is it still worth putting money into Bitcoin? ›
For that reason, while current market conditions are favorable for anyone considering buying Bitcoin, it is an asset you should purchase only at your own risk. Because while Bitcoin may have the potential for significant returns, you may also lose most of your investment.
Can the government shut down Bitcoin? ›
Since Bitcoin does not have any particular central authority, the government could just require every node that operates in the U.S. to have a license, effectively rendering the use of Bitcoin illegal since presumably most individuals would be incapable of going through such an arduous process.
Can the government take your Bitcoin? ›
Criminal Forfeiture
A warrant is not the only way for a law enforcement agency to seize bitcoin held by another individual or entity. Bitcoin can also be taken by the government through a process called forfeiture. Forfeiture is the permanent loss of that bitcoin by way of court order or judgment.
Why is crypto not the future? ›
Volatility and lack of regulation. The rapid rise of cryptocurrencies and DeFi enterprises means that billions of dollars in transactions are now taking place in a relatively unregulated sector, raising concerns about fraud, tax evasion, and cybersecurity, as well as broader financial stability.
Can you lose all your crypto? ›
Investing in Bitcoin and other cryptocurrencies carries the risk of losing the invested funds if the market value drops significantly or if the investment turns out to be a scam. It's essential to be cautious, diversify investments, and only invest money that you can afford to lose.
What happens if a cryptocurrency fails? ›
If the cryptocurrency exchange declares bankruptcy, the bankruptcy court will appoint someone to represent the company and handle its restructuring through bankruptcy proceedings. The company will send customers notifications about next steps, including how to file a claim for your assets.
Will cryptocurrency run out? ›
The maximum supply of 21 million bitcoins will be reached around the year 2140, after which no new bitcoins can be mined. The 21 million Bitcoin limit also has important implications for the process of Bitcoin mining.
How many cryptocurrencies have gone bust? ›
How many cryptocurrencies have failed?
| Year | Abandoned or No Volume | Scam or Other Issues |
|---|
| 2020 | 77 | 19 |
| 2021 | 34 | 36 |
| 2022 | 50 | 23 |
| Total | 1,584 (66.5%) | 528 (22.2%) |
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