At present, India has no regulation for cryptocurrencies; however, this statement is the third warning this year from the government.
Indian finance ministry has warned investors about the risks associated with trading in cryptocurrencies such as bitcoin, calling it similar to "Ponzi schemes."
The Finance Ministry of India on December 29 issued a public warning to caution citizens against investing in virtual currencies like bitcoin, saying digital currency investments are like "Ponzi schemes." The ministry warned investors about the risks of trading in cryptocurrencies by asserting that they lack intrinsic value and aren't backed by any assets.
At present, India has no regulation for cryptocurrencies; however, this statement is the third warning this year from the government. Earlier also in February and December, the Reserve Bank of India has issued similar warnings to people who hold and trade cryptocurrencies.
An excerpt from the notice read:
"The price of bitcoin and other [virtual currencies] 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... Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes."
A Ponzi scheme is an investment fraud which offers high returns. It pays off early investors with money from later investors.
The ministry further in the notice clarified that users investing in cryptocurrencies will be solely responsible for the potential financial, operational, legal and security-related risks. Cryptocurrency is not accepted as a legal tender in the country and no license is issued to authorize any virtual currency exchange in India.
Bitcoin is the biggest cryptocurrency in the world which is quite popular across Asia. According to the data from CoinMarketCap, Koinex, a major cryptocurrency exchange in India currently sees a $115 million trading volume within 24 hours. Thus, this warning may be directly meant for existing traders of cryptocurrencies in India.
There's increased concern regarding how to regulate cryptocurrencies in the country. Earlier, the Supreme Court of India asked various government bodies to look into developing a framework to "regulate the flow of Bitcoin" in the country. As such a cryptocurrency regulation proposal had been submitted to the Finance Ministry in August.
However, in spite of the warning, India has not imposed a ban on digital currencies, like its neighboring countries Bangladesh and Nepal where bitcoin is illegal.
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