Bitcoin a Ponzi Scheme? That’s what Indian Finance Ministry compares it to

The Union government of India compared cryptocurrencies such as Bitcoins, litecoins etc to Ponzi schemes and strongly cautioned investors against investing in them.

Quoting the finance ministry official in its statement released ” The VCs [virtual currencies] 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. Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes”

The government explained that virtual currencies are not legal tender and are neither currencies nor coins. “The government or Reserve Bank of India has not authorised any VCs as a medium of exchange. Further, the government or any other regulator in India has not given license to any agency for working as an exchange or any other kind of intermediary for any VC. Persons dealing in them must consider these facts and beware of the risks involved in dealing in VCs,” the ministry cautioned.

“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 said.

This is the first official statement that has come in from the Indian FinMin after 3 such warning from the Indian central bank from 2013 to 2017.

The Ministry also made of note by saying that cryptocurrencies are not reliable as they are stored in a digital/electronic format, making them vulnerable to hacking and malware attack.

In the meantime, the Finance Ministry’s stance regarding taxation of gains on cryptocurrency trade is still undecided.
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Earlier this month, the Income Tax Department conducted surveys on nine VC exchanges in Bengaluru, Hyderabad, Mumbai, Delhi and Kochi to ascertain the source of funds.

The government, however, sounded a note of caution, stating that “Cryptocurrencies are not backed by government fiat” and are not legal tender. Cryptocurrencies are neither currencies nor coins, and the government or the RBI has not authorised them as a medium of exchange, it noted.