The rapidly rising interest rates played a role in bursting the bubble of cryptos. There were flaws — these were fragile, badly governed and at times fraudulent. There were failures of Terra-Luna, Three Arrows Capital or Voyager Digital. Then came the collapse of FTX.

Investor demand surpassed what cryptos could achieve reasonably in near-term. As the cryptos could not become full-fledged currencies, they were mainly used for speculation and dubious activity. Crypto mania was fuelled by low interest rates, with firms taking excessive leverage. Investors chased bigger returns to supersede the market and beat the competition. All this summed up to more leverage and more risk taking.

This does not mean that the technology backed cryptos are at fault. There are other modes of digital finance and blockchain technology. To illustrate, smart contracts has the potential to improve payment systems and entrance financial inclusion. Central banks too are launching their own CBDCs to strengthen financial stability and assert their monetary sovereignty.

Regulators have a dilemma whether to regulate cryptos or not. There cannot be protection of private loss at the cost of public. And if the markets are left unregulated, there could be instability in the market.

Organisations operating on the lines of banks do require regulation. Some organisations act like casinos, and must be monitored for fraud. Investors must be cautioned that their speculative losses cannot be protected.

One has to be beware of crypto billionaires boasting of audits. In the 1980s savings and loan crisis, a US judge asked, ‘Where were the lawyers and accountants?’ The same question is relevant today as there is crackdown on cryptocurrency industry worth $3 trillion at the peak. Of course, it is patchily regulated.

Auditors and lawyers are considered as important gatekeepers by regulators. However, audits do not review internal controls. Legal advice is more nuanced and less formalistic than accounting. The transparency at crypto firms must be much more. The accountants and attorneys must fulfill their responsibilities.