Governor of the Reserve Bank of India: The next financial crisis could be triggered by the crypto market

(Patria) - The Governor of the Reserve Bank of India warned today that crypto markets risk triggering the next global financial crisis, saying the recent collapse of FTX is proof of the "inherent risks of this sector".

"Unlike any other product, our main concern with cryptocurrency is that it has no underlying value," said Reserve Bank of India Governor Shaktikanta Das.

"Our opinion is that it should be banned... if you try to regulate it and allow it to grow, please mark my words: the next financial crisis will come from private cryptocurrencies," Das added.

Cryptocurrencies have been under the scrutiny of Indian regulators since their first entry into the local market nearly a decade ago, with a surge in fraudulent transactions leading to a central bank ban in 2018, agencies recall. The Indian Supreme Court lifted the restrictions two years later, and the market grew, supported by rising local trading platforms and celebrity endorsements. But the introduction of a 30 percent tax on profits from trading "private currencies" this year has resulted in a tenfold decrease in trading volume compared to their previous size.

The sharp fall in the prices of leading tokens such as bitcoin, dubbed the "crypto winter," has wiped out more than $2 billion from their global market value since their peak of $3 billion in November 2021, further scaring traders.

The sudden collapse of FTX, a cryptocurrency exchange valued at $32 billion before filing for bankruptcy last month, along with US fraud charges against its former founder Sam Bankman-Fried, has intensified scrutiny of this sector.

Das said that the fall in cryptocurrency prices and recent developments surrounding FTX have confirmed his long-standing position that cryptocurrencies pose "huge risks to our macroeconomic and financial stability." The Reserve Bank of India introduced its own digital rupee based on blockchain technology this year, which aims to reduce the costs of commercial transactions as the Indian economy relies less on paper currency.

Last month, Indian Prime Minister Narendra Modi called for increased regulation of private currencies to curb terrorism financing. Modi also said last year that bitcoin poses a risk to younger generations and could "corrupt our youth" if it ends up "in the wrong hands."