Analysts and governments have repeatedly warned about a bubble that could burst at any moment as investors, many inexperienced, piled into the currency.
The price of these cryptocurrencies are "entirely a matter of mere speculation resulting in spurt and volatility in their prices", the government agency advised. 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 and result in retail consumers losing their hard-earned money. "Consumers need to be extremely cautious to avoid getting trapped", the ministry said in a statement. Indirectly, Govt.is saying that don't invest in such VCs, because its value can become zero any moment.
Ponzi schemes generally offer unusually high returns, with early investors paid off with money from newer investors, but those newer investors hoping to gain from still newer investors never make it.
The ministry issued a caution, outlining that encrypted transactions in cryptocurrency might be used to conduct illegal activities such as "terror-funding, smuggling, drug trafficking and other money laundering acts".
"VCs are not backed by Government fiat". The ministry also noted that though the digital currencies are described as "coins", they do not have the physical attributes.
The ministry in a statement said cryptocurrencies are not legal tender and have no regulatory permission or protection in the country. "Hence, VCs are not currencies". In the past 12 months, Bitcoin has witnessed a staggering growth of over 1,200 per cent in value, from $2,000 to above $15,000, and crossing the $17,000 mark in less than a month.
Such a note may be directly addressed to existing traders of cryptocurrencies in India, as data from CoinMarketCap shows that a more prominent cryptocurrency exchange in India, Koinex, now sees a $115 million trading volume within 24 hours.
On Thursday, South Korea's government said it would impose additional measures to regulate speculation in cryptocurrency trading within the country.
The RBI, too, had recently clarified that it has not given any licence to any entity to operate exchange trading in bitcoins or other virtual currencies.
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.
The world's second most-populous country is now exploring how to regulate bitcoin.