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Finance Ministry Issues Warning on Bitcoins, Calls It ‘Ponzi Scheme’

A Finance Ministry statement said there was a real and heightened risk of an investment bubble in virtual currencies of the kind seen in “ponzi schemes”.

Rounak Kumar Gunjan |

Updated:January 16, 2018, 2:56 PM IST
New Delhi: The Finance Ministry on Friday cautioned people on the risks of investing in virtual currencies like Bitcoin, which are not regulated by the government, calling them “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 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,” said the ministry said in a statement.

The statement said there was a real and heightened risk of an investment bubble in virtual currencies of the kind seen in “ponzi schemes”, which can result in sudden and prolonged crash, exposing investors, especially retail consumers, to losing their hard-earned money.

“Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes,” it added.

Virtual currencies are stored in digital/electronic format, making them vulnerable to hacking, loss of password, malware attack etc., which may also result in permanent loss of money, the ministry said.

“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,” it warned.

India has exchanges such as Zebpay, where users can buy and sell Bitcoins. Other forms of cryptocurrencies include ethereum and litecoin, which are yet to find prominence in India.

The finance ministry said that the users, holders and traders of virtual currencies have already been cautioned three times — December 2013, February 2017 and December 2017 — by the Reserve Bank of India (RBI) about the potential financial, operational, legal, customer protection and security-related risks that they are exposing themselves to by investing in Bitcoins and others such currencies.

“The RBI has also clarified that it has not given any licence/ authorization to any entity/ company to operate such schemes or deal with Bitcoin or any virtual currency. 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 investors and other participants therefore deal with these VCs entirely at their risk and should best avoid participating therein,” it added.

The Income Tax Department had recently conducted survey operations at major Bitcoin exchanges across the country on alleged suspicion of tax evasion. They said various teams, under the command of the Bengaluru investigation wing, visited the premises of nine such exchanges in the country including in Delhi, Bengaluru, Hyderabad, Kochi and Gurugram.

Currently, the value of Bitcoin is around $14,000.

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| Edited by: Nitya Thirumalai
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