Cryptocurreny like a Ponzi Scheme: India’s Finance Minstry

India’s finance ministry has cautioned investors about the risks of trading in cryptocurrencies such as bitcoin, saying digital currency investments are like “Ponzi schemes.”

India’s finance ministry has cautioned investors about the risks of trading in cryptocurrencies such as bitcoin, saying digital currency investments are like “Ponzi schemes.”

Cryptocurrencies are not legal tender and have no regulatory permission or protection in the country, the finance ministry said in a statement, but stopped short of announcing an outright ban or imposing any curbs.

Investors and other participants dealing with such digital currencies are doing so “entirely at their risk and should best avoid participating therein,” the statement said.

“There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes”, with investors risking a sudden and prolonged crash, the statement said.

A Ponzi scheme is a swindle offering unusually high returns, with early investors paid off with money from later investors.

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.”

India currently 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.

“Mere issuance of an advisory is not sufficient when thousands of people have lost money in cryptocurrency,” said Pavan Duggal, a cyber expert and a lawyer with India’s top court.

“Government has the sovereign duty to come up with a legal framework to regulate the cryptocurrencies and protect genuine investors,” he said.

Last week, India’s capital market regulator said it was in talks with the government and central bank on how to regulate cryptocurrencies.

(With inputs from Reuters)

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