Ex-RBI governor and expert economist Raghuram Rajan labelled Bitcoin as a “classic bubble”. The former RBI governor also remains unimpressed by Tesla’s growth.
The celebrated economist Raghuram Rajan is perhaps most known for his prediction about the 2008 housing crisis. In a recent interview with ET Now, Raghuram Rajan claimed the sudden bullish rise of Bitcoin’s value to be another ‘bubblish’ behaviour the cryptocurrency is showing.
Raghuram Rajan said, “Bitcoin reached $40,000 from $10,000 in the beginning of last year. Bitcoin is the classic bubble, it produces no value. It is an asset which cannot even be used for payment because it is really difficult. As my friend Austan Goolsbee says, they do not take Bitcoin as payment in Bitcoin conferences because it is just too costly and yet it hit $40,000! So why are people buying Bitcoin? They think it will go up and that is very bubblish in thinking.”
Rajan also spoke about Tesla’s extraordinary growth and asked people to remain firm on Tesla’s success.
Rajan said, “You have to have a very firm view of their (Tesla) success, and the spread of the vehicles they make to justify the kinds of prices that are being paid. So, it’s not as if everything is priced in a way we understand now, that doesn’t immediately imply that the bust is coming. There are certainly when people talk about it reasons to believe that there are underlying supports- the very easy monetary policy, the very low-interest rates, the fact that economies are in rebound, I call it a rebound rather than a recovery because recovery means you go back to the place you were, we’re still way below the place we were but we are recovering, we are rebounding quite fast. And especially in manufacturing, that rebound is showing up in, you know, good results relative to the previous year.”
Rajan’s stance comes when the stock markets are on a steady rise in India. Sensex crossed the 49,000-point mark on 11th January thanks to the positive third-quarter earnings results of IT companies. While the Indian markets are on a high, the cryptocurrency world has been seeing immense growth as well. Earlier this month, Bitcoin was at its highest and the cryptocurrency volume reached the 1-trillion-dollar mark.
In August 2020, Raghuram Rajan discussed the possible potential of cryptocurrency like bitcoin in the future in CNBC’s “Beyond the Valley” podcast. Rajan during the conversation said that cryptocurrencies like bitcoin or Facebook-backed libra could play a role in the world where the banks begin to issue their own currencies.
Rajan also claimed bitcoin to be a “speculative asset” saying that, “bitcoin is a little bit like gold, in fact, gold has some value because we value it for jewelry, but bitcoin you can’t even do that. Nevertheless, it has value because others think it has value.”
Raghuram Rajan was the director of research at the IMF (International Monetary Fund) from 2003 to 2006, and the 23rd governor of the RBI from 2013 to 2016. While serving as the RBI governor, he also was the vice-chairman of the Bank of International Settlements.