Former RBI Chairman, Raghuram Rajan. File | Photo credit: archive photo

The crash in digital asset prices over the past year will allow investors to focus on the “true value” of this new technology, the distributed ledger and the smart contracts that can be built on it, the former governor of the Reserve Bank of India, Raghuram Rajan said on Wednesday.

“The idea that cryptos are somehow going to hold their value, while fiat currencies are collapsing. That’s nonsense,” Rajan said on the sidelines of the World Economic Forum’s annual meeting in Davos, Washington. Swiss.

“Fiat currencies have gained credibility,” he said in an interview with the Reuters Global Markets Forum.

The broader crypto market shrunk by $1.4 trillion in 2022, with bitcoin losing 60% of its value. It did, however, post a 26% gain in January, jumping 22% in the past week alone, climbing back above the $20,000 level, putting it on track for its best month since October 2021.

Cryptocurrencies lost credibility in November when crypto exchange FTX, which was valued at $32 billion a year ago, filed for bankruptcy protection in November and US prosecutors accused its founder Bankman-Fried of orchestrating an “epic” fraud that could have cost investors, customers and lenders billions of dollars.

Mr Rajan expects the US Federal Reserve to continue raising interest rates for the time being, while looking for signs of a slowdown in the labor market.

“When you still have 200,000 jobs (created) per month, that suggests there’s still a long way to go,” he said.

Mr Rajan believes a mild recession would not be a problem for the US central bank as the Fed believes it can allow the economy to recover by cutting rates.

One cause for concern, however, could be that labor markets were tight because no one wanted to lay off people, given how difficult it was to hire them initially, he said.