The government on Friday warned the public against investing in crypto-currencies, terming them as "Ponzi schemes".
The warning comes a day after South Korea, a global hub for bitcoin trading, said it would ban anonymous cryptocurrency trading due to the "abnormal situation of speculation". "The price of Bitcoin and other virtual currencies, therefore, is entirely a matter of speculation resulting in spurt and volatility in prices", the ministry said. "Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes", India's finance ministry said in its note.
"There has been a phenomenal increase in the recent times in the price of virtual currencies (VCs), including Bitcoin, in India and globally". Indirectly, Govt.is saying that don't invest in such VCs, because its value can become zero any moment.
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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. The statement of the Government also lamented that the dependency of such currencies online makes it vulnerable to hacking, malware attack and loss of password.
"Virtual Currencies are not backed by Government fiat. 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 VC", the statement said.
The ministry also cautioned that encrypted transactions in cryptocurrency were likely being used for illegal activities such as "terror-funding, smuggling, drug trafficking and other money laundering acts". "Hence, VCs are not currencies". 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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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.
India now has no regulation for cryptocurrencies, and like other global policymakers, it is seeking to understand how to supervise a market that many feel is a speculative bubble.
At a press conference here, Pluto Exchange founder and Chief Executive Bharat Verma said his company is all set to launch the country's first app-based wallet that enables Bitcoin transactions using a mobile number.
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