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Speaking at the keynote for Day 2 at Inc42’s Fintech Summit 2022, Dr Amar Patnaik, Rajya Sabha MP (BJD) and Member, Parliamentary Standing Committee on Finance, Government of India, talked about how the ongoing crypto crash was the responsibility of those who give crypto its value.

“Somewhere, in this case, the government has a role. The audits have not been done properly, the compliances have been done, the reviews have not been done, and the financial statements have not been worked out. So, I think this is completely the failure of those who have actually moved that coin or have given worth to that coin,” he said.

Dr Amar Patnaik gave the example of the CBDC India is planning to launch, the Digital Rupee, which will be backed by the RBI by its design. “If the CBDC crashes, it would be the fault of the RBI,” he said.

Dr Patnaik further noted that this crash has given two insights into how the relationship between crypto, regulators and investors works.

“Their crashing itself is a great indicator of two things. One, the regulators can’t apply the normal approaches for regulating digital currencies, they have to be more agile, prompt and develop new methods of monitoring them. And second, if we allow this to happen, the entire crypto ecosystem might crash. Because people will lose confidence in the entire system,” he said.

The Rajya Sabha MP also explained that while it is good to take risks, investors need to understand that crypto is not for everyone, and that crashes such as the one happening right now are part of the whole process.

He noted that it was ironic that stablecoin, which was supposed to provide more stability to crypto, has crashed all over the world. Calling it a “matter of concern”, Dr Amar Patnaik said that this raises a fundamental question about cryptocurrency and its intrinsic value. 

“Even after having done that if there are LUNA, that crashed like no one ever thought. It is a good time to educate potential investors and customers that this space is extremely risky. Let’s accept it; I really do not know why crypto players keep on saying that it is not. It’s not for everyone,” Dr Patnaik said.

He further urged crypto stakeholders to inform investors about the risk involved, to avoid situations like chit funds, Ponzi schemes and frauds. He noted that because investors lose money, the government has to use taxpayer money to set up relief measures and refund the money to the investors.

Informing the investors beforehand avoids that situation, Dr Amar Patnaik summarised.

“If we tell the people this is what the risk is involved, even for stablecoin, then people before investing would actually go through that and then decide how much of their potential surplus wealth they can put in,” he said.

This becomes all the more relevant as the government asked celebrities to exercise caution while endorsing any and all cryptocurrencies and related businesses.

Cryptocurrency has attracted divided opinions from the Indian leadership. Recently, RBI Governor Shaktikanta Das called crypto a ‘clear danger’. Das added that anything that derives value based on make-believe is ‘just speculation’.

The country has also adopted a strict taxation regime, including a 30% tax on all gains made on cryptocurrencies, and a 1% TDS on all crypto transactions above INR 10,000.