The government has joined the Reserve Bank of India in cautioning potential customers from investing in cryptocurrencies such as Bitcoin, likening them to Ponzi schemes.
“There has been a phenomenal increase in recent times in the price of virtual ‘currencies’ (VCs) including Bitcoin, in India and globally,” the Finance Ministry said in a statement on Friday. “VCs don’t have any intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other VCs 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 exposing investors, especially retail consumers losing their hard-earned money,” the statement added. “Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes.”
The government added that since VCs are stored in an electronic format, this makes them vulnerable to hacking, loss of password, malware attacks, etc, which could also result in a permanent loss of money.
“As transactions of VCs 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,” the statement said.
The Reserve Bank of India has issued three warnings, two of them this year, about the potential financial, operational, legal, customer protection, and security related risks associated with investing in virtual currencies.