Innovation Should Serve A Social Or Economic Purpose: UK Sinha On Cryptos

All innovations should serve a social or economic purpose, UK Sinha, the former chairman of the Securities and Exchange Board of India (SEBI), said on Friday (June 1) while talking about cryptocurrencies. 

“If it does not meet that criteria, then it can be a good play for people with money in their pockets. But, it cannot be a mass product…Crypto has to pass that test. Whatever promises have been made in the past, the last two months have clearly established that those promises cannot be fulfilled,” Sinha said at Inc42’s Fintech Summit 2022.

At a time when the prices of cryptocurrencies have seen a big decline, Sinha said that the crypto industry has to prove that it has an important social purpose to serve. He said he is against cryptos in the current form as he is not convinced that they are serving a particular purpose.

Sinha further urged the crypto industry to refrain from making ‘tall claims’. 

“If you make a tall claim and it falls flat, you go down by 10% or more. Also it stands to reason that there can’t be something which is a perpetual motion machine that will run on its own perpetually,” the former SEBI chairman said.

Citing ‘important people’ who are part of the current regulatory framework, Sinha said. “They are not impressed with financial gymnastics. So if you are doing gymnastics, you are welcome to do that with your own money which is not borrowed…But financial gymnastics does not amuse regulators.”

Responding to a question from 3one4 Capital’s founding partner Siddarth Pai, Sinha said that cryptocurrencies and Decentralised Finance (DeFi) have thrown some open challenges to the regulators. He, however, added that the government and the officials at the helm of the affairs are trying to figure out how to ‘handle the animal’.

Sinha also drew attention to the risks posed by the crypto ecosystem to the country’s financial stability. “The last two months have also exposed that many people were borrowing at as high as 17% and later figured out that they couldn’t meet their obligations. So, if this whole thing assumes a vertical size, then, it can have implications on the financial stability,” he added. 

The comments came a day after the Reserve Bank of India (RBI) Governor Shaktikanta Das termed cryptocurrencies a ‘clear danger’, adding that anything that derives value based on make believe is ‘just speculation under a sophisticated name’.

Besides, the central bank’s Financial Stability Report (FSR), released on Thursday, called cryptocurrencies a ‘medium’ systematic risk to the economy and described the crypto-asset ecosystem as a ‘growing threat’ that warrants drastic approaches by national authorities.

The FSR also highlighted concerns regarding money laundering and financing terror activities.

Sinha said that the crypto industry can only move into the future if it can justify that it is serving a social purpose and not just making tall claims.

The session was a part of the first day of Inc42’s two-day Fintech Summit 2022. The second day will see big names like BharatPe board chairman Rajnish Kumar, Amazon Pay India’s Vikas Bansal, among others, speaking at the event.