Cryptocurrency: Ponzi Scheme or the Future?

T. Rabi Sankar, the deputy governor of the Reserve Bank of India, has stirred the pot by likening cryptocurrency to Ponzi schemes. His recent keynote address raised eyebrows as he advocated for a complete ban on digital currencies rather than trying to regulate them. So what’s the deal? Is crypto really a financial house of cards, or are we missing the bigger picture?

The Challenge of Definition

During his speech, Sankar highlighted a fundamental dilemma: cryptocurrency’s inability to fit neatly into any existing financial categories. He said,

“Cryptocurrencies are not currencies or financial assets or real assets or even digital assets. Therefore, it cannot be regulated by any financial sector regulator.”

In other words, trying to regulate something you can’t define is like trying to nail jelly to a wall—messy and ultimately futile.

Regulation vs. Condemnation

Sankar argues that regulating crypto might inadvertently suggest that it’s an acceptable store of value. Kind of like giving a thumbs up for kids to play with fire because you gave them fireproof gloves. He added that banning it would likely prevent more gains for the Rupee, claiming that “permitting cryptocurrency to exist in a fiat-dominated ecosystem is bound to have a destabilizing effect on monetary and fiscal stability.”

The Value Proposition

If you’ve ever wondered why the value of cryptocurrencies seems so whimsical, it’s because, according to Sankar, their worth is floating on nothing but speculation. He stated,

“The value of crypto assets rests solely on the expectation that others will also value and use them.”

Kind of reminds you of collectible rocks—great if you find the right buyer!

Policy Paralysis and the Future

As India’s government sits in limbo—caught between the cries for regulation and the shadows of a ban—finance minister Nirmala Sitharaman recently hinted she’s not ready to dive into legality just yet. Meanwhile, the RBI continues to toy with the idea of a central bank digital currency (CBDC), aiming to possibly launch a digital rupee by 2023. Can we expect an ultimatum? Only time will tell!

The Bottom Line

As the conversation around cryptocurrency unfolds in India, one thing remains certain: clarity is desperately needed. Without it, businesses are left stuck in a game of regulatory dodgeball, unsure of the rules. So, will crypto find its rightful place in India, or will it remain a digital Wild West?