Finance ministry likens cryptocoins to ponzi scheme

New Delhi: In one of the strongest warning against investing in virtual currencies like Bitcoin, the Centre on Friday drew parallel to “ponzi schemes”, where  there is a “real” risk of people “losing their hard-earned money”.

“Virtual currencies (VCs) are not backed by government fiat. These are also not legal tender. Hence, virtual currencies are not currencies. These are also being described as ‘coins’. There is however no physical attribute to these coins,” a finance ministry statement said.

It underlined that “virtual currencies’ (VCs) are neither currencies nor coins.”

The statement comes after South Korea said it was planning a crackdown on trading in the digital currency, which has hit record high value in 2017.

Bitcoin has surged by more than 900 per cent in value in 2017, which has raised fears of a bubble around countries.

“The government or RBI has not authorised any virtual currencies as a medium of exchange. 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 virtual currencies,” the statement said.

It pointed out that persons dealing in them must consider these facts and beware of the risks involved in dealing in VCs.

“The users, holders and traders of virtual currencies have already been cautioned three times, in December, 2013, February, 2017 and December, 2017, by RBI about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin and/or other virtual currencies,” said the ministry.

It pointed out that the RBI has also clarified that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any VCs.

“The government also makes it clear that virtual currencies are not legal tender and such virtual currencies do not have any regulatory permission or protection in India. The investors and other participants therefore deal with these VCs entirely at their risk and should best avoid participating therein,” it said. “There has been a phenomenal increase in recent times in the price of virtual ‘currencies’ including Bitcoin, in India and globally. The virtual currencies don’t have any intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other virtual currencies therefore is entirely a matter of mere speculation resulting in spurt and volatility in their prices,” the ministry said.