India's finance ministry has cautioned investors about the risks of trading in cryptocurrencies such as bitcoin, branding the "virtual currencies" as akin to a Ponzi scheme. "The price of Bitcoin and other VCs (virtual currencies) therefore is entirely a matter of mere speculation resulting in spurt and volatility in their prices". There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes, which can result in sudden and prolonged crash and result in retail consumers losing their hard-earned money.
The Finance Ministry of India touted what it perceives as a lack of intrinsic value in virtual currencies as reason to equate them with Ponzi schemes. Indirectly, Govt.is saying that don't invest in such VCs, because its value can become zero any moment.
A Ponzi scheme is a swindle offering unusually high returns, with early investors paid off with money from later investors.
The ministry noted that India now has no regulatory framework to protect investors who purchase cryptocurrencies and cautioned that investors who want to trade them do so "entirely at their risk". The statement of the Government also lamented that the dependency of such currencies online makes it vulnerable to hacking, malware attack and loss of password. "As transactions of [virtual currencies] are encrypted, they are also likely being used to carry out illegal/subversive activities, such as terror-funding, smuggling, drug trafficking and other money-laundering acts". Reserve Bank of India or RBI, is the central authority for issuing and printing currencies, and they are not at all involved with any form of VC. "Further, the government or any other regulator in India has not given license to any agency for working as exchange or any other kind of intermediary for any VC", the statement said. Many of them do not even believe that it should be treated as a legal medium of exchange at all. "Hence, VCs are not currencies".
WanaCrypt Judy Locky and Petya are some of the malware attacks in the recent times. Wikiimedia Commons
Bitcoin values in NY, for instance, have soared almost 1,600 per cent over the past year and now range upwards of $15,000.
The warning comes after the income tax department conducted raids on nine cryptocurrency trade exchanges across India.
Digital currencies are very popular across Asia, with countries such as Japan and South Korea together making up for more than half the global trading volumes by some estimates. The committee has submitted its report which is under consideration of the government, the minister said.