Former RBI Governor Raghuram Rajan said of the 6000-odd cryptocurrencies in existence today, only one or two, or at most, only a handful would survive.
“If things have value only because they because they will be pricier down the line, that’s a bubble,” Rajan told CNBC-TV18, “…a lot of cryptos have value only because there is a greater fool out there willing to buy.”
He compared the current mania in cryptocurrencies to the tulip mania in Netherlands in the 17th century.
“Cryptos may pose the same problem as unregulated chit funds which take money from people and go bust, a lot of people holding crypto assets are going to be aggrieved,” he said.
Rajan said that it was not as if cryptocurrencies had no value at all, just that most of them did not have permanent value. Also, some of them would survive to provide payments, especially cross border payments.
“In the US, crypto is a $2.5 trln problem that nobody really wants to regulate,” he said, adding that the problem was partly due to regulators not fully understanding this space and how to regulate it.
“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,” he said.
Rajan said the Indian government must allow the underlying blockchain technology to flourish. He said blockchain ways of transacting were much cheaper, especially across borders.
He was unsure if bitcoins would create a foreign exchange issue.
“If more people are buying bitcoins than are being mined in India, there can be an FX issue,” he said
"I do worry that in the long run, if we have a significant investment in these assets, and they lose value overtime, there will be a lot of concern amongst people - why did we get into this and what would the regulators do," he added.