Why do people invest in unregulated chit funds? The answer is simple: they offer better returns than regular banks. So, when Raghuram Rajan warns that cryptos may go bust like these unregulated chit funds, it makes sense to be worried.
Cryptocurrencies are not regulated by any central bank, and there are no rules on how much money you can put in them. They also have a high risk of being used for illegal purposes, including money laundering and terrorism financing. That’s why regulators continuously warn us about the risks of investing in cryptocurrencies. Rajan himself had warned that cryptos may be headed towards a bubble just like the one seen in the 1990s with dot-com stocks.
The Dark Side Of Cryptocurrency: Is It Really Worth It?
Rajan said that cryptos may pose the same problem as unregulated chit funds
According to him, crypto is a USD 2.5 trillion “problem that nobody wants to regulate” in the US.
Amidst reports the Centre will introduce a bill banning private cryptocurrencies in India during the Winter Session of Parliament beginning November 29. According to former Reserve Bank of India Governor Raghuram Rajan, only a handful of the approximately 6,000 cryptocurrencies that exist today will endure.
He told CNBC that out of the 6,000 cryptocurrencies that exist today, “only one or two would survive”. “If something only has value because it will get more expensive down the road, that’s a bubble,” he said.
“…a lot of cryptos have value only because there is a greater fool out there willing to buy,” Rajan told CNBC.
Rasan said that cryptos could be a problem similar to unregulated chit funds that take people’s money and go bust. Apparently, there are going to be a lot of people with crypto assets who will suffer.
In the US, he said that crypto is a USD 2.5 trillion “problem that nobody really wants to regulate”. He said regulators don’t fully understand how to regulate this space because they don’t fully understand this space.
It proposes to prohibit all private cryptocurrencies in India through the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The bill does allow for certain exceptions to promote cryptocurrency technology and its use. Its other objective is to establish a framework for the creation of the Reserve Bank of India’s digital currency.
Narendra Modi, the prime minister of India, had said earlier that all democratic countries should cooperate on cryptocurrency and make sure it doesn’t end up in the wrong hands. Giving an example of the virtual currency, he had said: “Take cryptocurrency or Bitcoin for example. It is important that all nations work together on this and ensure it does not end up in the wrong hands, which can spoil our youth.”
Several high-profile meetings have taken place in recent days to discuss cryptocurrency regulation. It had also called for regulation of cryptocurrencies and their ecosystem from the Parliamentary Standing Committee.
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