Some people are celebrating the recent approval of bitcoin exchange traded funds (ETFs) in the US as though “the party” has resumed , but such speculative financial products with no underlying value pose huge risks to financial stability, Reserve Bank of India (RBI) governor Shaktikanta Das said.
The US Securities and Exchange Commission last week approved spot bitcoin ETFs, while cautioning about risks associated with products whose value is tied to cryptocurrency.
“Some people are celebrating it as though the party has just begun. It began four-to-five years ago, and then it collapsed. Now again the party has started. But there are huge risks, particularly for emerging markets because it can impact financial stability, currency stability and monetary system,” Das said at an event at the World Economic Forum in Davos, Switzerland.
“There are issues of money laundering and terror-financing tied to cryptocurrency, which has the potential to become a currency-like product,” Das warned.
However, blockchain, the underlying technology behind cryptocurrency, has many applications and can be put to “excellent use,” he said, while adding that the tech is already being used in logistics firms.
India’s Central Bank Digital Currency (CBDC), the digital rupee, which is based on blockchain, is also in use on a pilot basis. Unlike the unified payment interface (UPI), which is solely a payment system, the digital rupee is a sovereign currency, and users can transfer money directly without the need for an intermediary.
The Reserve Bank introduced the e-rupee in 2022 in two versions: CBDC-Wholesale (e₹-W) and CBDC-Retail (e₹-R).
The e₹-W primarily focuses on settlement of secondary market transactions in government securities, while e₹-R aims to facilitate transactions among the general public, including both customers and merchants, within a closed user group.
Meanwhile, US spot bitcoin ETFs have seen inflows of almost $1 billion since their launch last Thursday, Financial Times reported, citing data from digital asset manager CoinShares.
The new spot bitcoin ETFs include those from BlackRock, Franklin Templeton and Invesco.
Traders have pulled out $579 million from the Grayscale Bitcoin Trust, which runs the world’s largest bitcoin fund, in the first few days of trading since it converted into an ETF, Bloomberg reported.
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