A statement issued by the Finance Ministry of India today, December 29, portrayed virtual currencies (also referred to as cryptocurrencies) as Ponzi schemes, and recommended that investors exercise extreme caution regarding them.
"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. There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money."
The ministry further warned against technical risks users might encounter: "VCs 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."
Rehashing a favorite governmental criticism of virtual currency, the ministry's statement also mentioned terrorism and drug trafficking.
Since virtual currencies are not backed by government fiat, the ministry stated that virtual currencies are "not legal tender" emphasizing that the "Reserve Bank of India has not authorized any VCs as a medium of exchange" nor given authorization to any agency for their use or endorsement.
Finally, the ministry reminded the Indian citizenry that the Reserve Bank of India had previously spoken out against "the potential financial, operational, legal, customer protection and security related risks" it associates with virtual currencies in December 2013, February 2017, and December 2017.
But cautionary guidance and laws are not one and the same. In November, India's supreme court requested regulatory clarification from various government bodies. As recently as last week, India's capital market regulator was reportedly talking over how to regulate cryptocurrencies with the government and central bank.