India sounds alarm on cryptocurrencies

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India sounds alarm on cryptocurrencies
An Indian finance ministry statement said that as virtual currencies are not backed by assets, their prices are entirely a 'matter of mere speculation'.

Published: Fri 29 Dec 2017, 6:00 PM

Last updated: Fri 29 Dec 2017, 8:53 PM

Noting that virtual currencies like Bitcoin have no "intrinsic value", the Indian government on Friday sounded the alarm on the phenomenon of cryptocurrencies, comparing them with the notorious Ponzi schemes floated to dupe gullible investors.
A Finance Ministry statement said that as virtual currencies (VCs) were not backed by assets, their prices are entirely a "matter of mere speculation".
"Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes."
Named after an Italian immigrant to the US, Ponzi schemes operate by enticing a gullible group with the promise of very high returns in a short time, but is based on paying off the early investors from the cash from newer ones. The whole structure collapses when the cash outflow exceeds the inflow.
"VCs don't have any intrinsic value and are not backed by any kind of assets," the statement said.
"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," it added.
Noting that VCs are stored in digital format, the ministry said this makes them vulnerable to mishaps like hacking, loss of password and malware attack "which may also result in 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 moneylaundering acts," it said.
It clarified that VCs are not legal tender and do not have any regulatory permission or protection in India.
"VCs are neither currencies nor coins. The Government or Reserve Bank of India (RBI) has not authorised any VCs as a medium of exchange. Further, the government or any other regulator in India has not given licence to any agency for working as exchange or any other kind of intermediary for any VC," the statement said. The government also recalled that the Reserve Bank of India had cautioned potential investors about the risks in investing in cryptocurrencies like Bitcoins on three earlier occasions - in December 2013, February 2017 and December 2017. According to investigation agencies here, with the demand and price of cryptocurrencies on the rise, cyber criminals have found innovative ways to dupe those looking to invest.
Bitcoins in India, have been trading at more than one million rupees each, while people are investing amounts ranging from 3,000 to several lakhs of rupees.
Bitcoin values in New York, for instance, have soared nearly 1,600 per cent over the past year and currently range upwards of $15,000.
Analysts and governments have repeatedly warned about a bubble that could burst at any moment as investors, many inexperienced, piled into the currency.
India's government said consumers needed to be "extremely cautious as to avoid getting trapped in such Ponzi schemes".
Its warning came a day after South Korea, a hotbed for cryptocurrency trading, said it would ban anonymous trading of virtual currencies.
The vice-president of the European Central Bank has also expressed concern about the relentless rise in the value of Bitcoin.
US Federal Reserve boss Janet Yellen has said Bitcoin is not money and called on banks to be certain their digital currency transactions adhere to anti-money laundering statutes.


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