India's finance ministry on Wednesday issued a warning against trading and transacting in crytpocurrencies such as Bitcoin, saying they do not have any intrinsic value and likened them to Ponzi schemes.
The virtual currencies, or VCs, are not backed by any kind of assets and the price of Bitcoin and its peers is "entirely a matter of mere speculation", the ministry said in a statement.
"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 ministry warned.
The price of Bitcoin, the largest cryptocurrency by value, surged nearly 20-fold, or over 1,900 percent, this year, from under $900 at the start of the year to a record high of almost $20,000 around December 17.
Amid repeated calls for caution, the price of Bitcoin plummeted to below $11,000 on December 22, just days after futures trading in the cryptocurrency began in Chicago exchanges. And it is such wild swings that are raising the crash warnings.
The finance ministry said that cryptocurrencies are not currencies as they are not backed by government fiat and are not legal tender. The ministry also noted that though the digital currencies are described as 'coins', they do not have the physical attributes.
"The Government or Reserve Bank of India has not authorized any VCs as a medium of exchange," the ministry said in the statement.
The RBI already cautioned investors thirce against the risks in cryptocurrencies. The first warning came in December 2013. The second one was issued in February this year and the third, earlier this month, as the value of Bitcoin scaled new highs amid increased investor interest and signs of acceptance into the mainstream financial market.
"The Government also makes it clear that VCs are not legal tender and such VCs do not have any regulatory permission or protection in India," the ministry said.
"The investors and other participants therefore deal with these VCs entirely at their risk and should best avoid participating therein."
Reports suggest the Bitcoin boom is largely led by Asian countries. That said, the recent rise of the cryptocurrency prompted authorities in Asia Pacific countries from China to Australia to issue warnings against the use of such currencies.
China banned trading in Bitcoin and initial coin offerings in September.
Earlier this week, the South Korean government said that it was planning to implement special measures to curb speculation in the virtual currency market. New measures will require real-name cryptocurrency transactions and the government also plans to ban cryptocurrency exchanges.
The Monetary Authority of Singapore urged the public last week to act with extreme caution and to understand the significant risks they take on if they choose to invest in cryptocurrencies.
In Israel, the stock market watchdog has sought a ban on companies trading in cryptocurrencies from listing on the Tel Aviv stock exchange. The Israel Securities Authority also wants a suspension of such firms currently operating on the stock exchange.
by RTT Staff Writer
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