Raghuram Rajan, the economist and former governor of India's central bank, claims that cryptocurrencies have received their 'comeuppance' as speculative asset classes. On the far right, Raghuram Rajan, a former governor of the RBI, is seen participating in a WEF panel discussion about the macroeconomic outlook for 2023. 

At the World Economic Forum's annual meeting on Tuesday in Davos, Switzerland, he told CoinDesk that this does not imply, however, that the technology that supports cryptocurrencies needs to be penalised as well. Regulators should instead be wary of adopting rules that could stifle innovation.

'I don't think you want to say that this technology was a horrible investment and write it off. I think it was treated fairly. Rajan asserted, 'I don't think we have yet pushed the limits of technology.

The industry created a stir in Davos in May after a historic bull market that quickly fell into the worst crypto winter on record. However, Fried's crypto fans and local businesses in the Swiss town are already striving to change the emphasis this year to developing blockchain technology after a run of notable failures, which included the infamous collapse of Sam Bankman-FTX.

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Rajan agreed that's where the focus should be. Too much time was spent in the cryptocurrency industry on the idea of creating an inflation-resistant 'alternative to fiat money' that would prevent central banks from 'flooding the world with phoney money.'

'I think that was a weak excuse,' Rajan said.

Rajan believed that decentralisation advocates who claimed that every ledger of transactions needed to be decentralised and that this could be achieved without placing 'trust' in money created and supported by a central bank was partly to blame for the problem.

Rajan asserted that it turns out you can't truly do it and that you must always rely on a central party, saying the industry should focus more on use cases like improving cross-border transactions 'particularly if countries start to get into conflict with one another.'

The ability of cryptocurrencies to reject the narrative of mistrust toward central banks and find means of cooperation, according to Rajan, may determine how successful they are in the future.

That suggests that regulators must get along as well.

For instance, Rajan said that central banks shouldn't aim to 'displace the private sector' when they create digital versions of sovereign currencies. He proceeded by suggesting that instead of competing with the private sector, central banks' digital currencies could offer a public platform on which they can operate. In the end, I think that's a win-win situation,' he said.

The Reserve Bank of India has stated numerous times in recent years that while controls should be put in place to 'filter' out undesirable actors from the market, outright banning cryptocurrencies may not be the best course of action.

Rajan said that constraints should only be applied sparingly because they will hinder progress. He said that the Indian central bank might think that the vast majority of private investors flooding the cryptocurrency market may not fully understand the risks there.

The industry believed regulators may also need to reevaluate their priorities and stop worrying so much about how cryptocurrency poses a threat to financial stability, which was ultimately irrelevant because the spread of the numerous crypto bankruptcies last year did not harm broader economies, according to discussions about cryptocurrency on Tuesday in Davos. Regulators should prioritise consumer protection instead.

Rajan contends that while innovation frequently leads to certain mistakes and failures, it does not mean that new developments must be halted.

He thought that rather than outright prohibiting all technology, providing some flexibility under restrictions that might be meant to eliminate excessive speculation and fraud was preferable.