The recent comments by the Governor of the Reserve Bank of India (RBI) – Shaktikanta Das, that the next financial crisis will arise from the private cryptocurrency sector has triggered many debates among economists and other financial experts today.
Many crypto enthusiasts from these groups have denied the possibility of Bitcoin (BTC) and any other cryptocurrency leading the world into a financial crisis. This set of people argues that the crypto market is still in its developmental stage and has lower capital invested in it compared to other financial markets.
However, considering the increasing amount of capital invested into crypto every day, some believe that the possibility of the crypto market throwing the world into a financial crisis cannot be completely overruled. Is this even possible? Can the crypto market cause a global financial crisis in the future? This work has examined these important questions.
Meaning of Financial crisis
A financial crisis is a troubling situation where large financial bodies are unable to fulfill their financial commitments to their clients due to a shortage of funds.
Can Crypto lead the world to a financial crisis?
A lot of people today are now condemning cryptocurrency, citing the possibility of such a business leading the world into a financial crisis. The Governor of the Indian Reserve Bank – Shaktikanta Das, has become one of the notable proponents of this view after he stated last week that the next global financial crisis would arise from private cryptocurrency. He described Cryptocurrencies as having no underlying intrinsic value and therefore constitute serious risks to macroeconomic and financial stability. Hence, he suggested that all private cryptocurrency dealings should be banned.
This position Das has attracted large criticism and supporters too.
Many analysts argued that the global financial crisis has always manifested due to government economic policies and has never been a result of private crypto trading. Hence, it would be unfair to blame it on crypto.
Previous attempts by the crypto industry to push the world into a financial crisis
The history of cryptocurrency is filled with several cases of the crypto industry trying to destabilize the global economy with the amount of capital lost by investors. The significant cases of this attempt have been discussed in this work.
A most significant case of this attempt is the recent FTX crash which saw investors losing more than $6 billion invested on the platform. This caused a lot of businesses and organizations to go out of business, especially those who invested heavily in the exchange.
A similar crypto crisis that almost caused a global financial crisis was the crash of the mt. Gox exchange which was the largest crypto exchange as of 2014 when it crashed. The exchange reported that hackers had stolen over $460 million from them and therefore filed for bankruptcy protection, which resulted in investors not being able to withdraw their funds to date.
There are several other cases outside these that have taken place in the past, and the list keeps increasing every day. Hence, many suppose today that when left unregulated could eventually lead to a world financial crisis.
What are the necessary measures put in place today to prevent crypto from leading the world into a financial crisis?
The rising cases of the global crisis on the crypto market today have caused the different regulatory authorities to take more proactive steps towards regulating crypto trading in their countries today. Many countries have already promulgated new laws to guide crypto trading within their country, while others are currently working on formulating the best laws for crypto trading in their country today.