India’s Finance ministry has drawn the attention of investors to the risks associated with trading in cryptocurrencies such as Bitcoin, warning categorically that digital currency investments are like “Ponzi schemes”.
A Ponzi scheme is a swindle offering unusually high returns, with early investors paid off with money from later investors. Bitcoin, which is the world’s biggest and best-known cryptocurrency, has gained more than 19-fold this year.
The Indian Finance ministry, in a statement issued on Friday, pointed out that cryptocurrencies are not legal tender and have no regulatory permission or protection in the country.
While failing to announce an outright ban or imposing any curbs, the ministry stated that investors and other participants dealing with such digital currencies are doing so “entirely at their risk and should best avoid participating therein.
“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 ministry equally warned that encrypted transactions in cryptocurrency were likely being used for illegal activities such as “terror-funding, smuggling, drug trafficking and other money laundering acts”.