Govt warns against investing in bitcoin, calls it Ponzi scheme

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India has likened virtual currencies, including Bitcoin, to Ponzi schemes, cautioning people against getting involved with them. Further, the government or any other regulator in India has not given licence to any agency to work as exchange or any other kind of intermediary for any virtual currency. "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 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.

A Finance Ministry statement said that as virtual currencies (VCs) were not backed by assets, their prices are entirely a "matter of mere speculation".

Ponzi schemes are fraudulent investment operations where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.

Virtual currencies are stored in digital format, making them vulnerable to hacking, loss of password and cyber attacks, which may also result in permanent loss of money. These are also not legal tender.

"VCs are neither currencies nor coins". The market capitalization of digital tokens and coins exploded in 2018, with the two most prominent currencies, bitcoin and ethereum, rising by over 1,400 percent and 8,900 percent, respectively, over the past year.

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Although the supporters of Bitcoin hope that it will become the future global currency, some countries' leaders have their doubts.

Investors and other participants, therefore, deal in virtual currencies entirely at their risk, the statement said.

As transactions of virtual currencies are encrypted, the ministry said they were also likely being used to carry out subversive activities such as terror financing, smuggling, drug trafficking and money-laundering.

Amid repeated calls for caution, the price of Bitcoin plummeted to below USD11,000 on December 22, just days after futures trading in the cryptocurrency began in Chicago exchanges.

Add India to the list of countries that is wary of cryptocurrencies.

But, on Thursday, South Korea's government said it would impose additional measures to regulate cryptocurrency trading within the country, leading to speculation of an outright ban on its trading.