‘BITCOIN AKIN TO PONZI SCHEMES’
India warns investors of risks trading in cryptocurrencies but stops short of ban
INDIA’S finance ministry yesterday cautioned investors about the risks of trading in cryptocurrencies such as bitcoin, saying digital currency investments are like “Ponzi schemes”.
Cryptocurrencies were not legal tender and had no regulatory permission or protection in the country, said the finance ministry 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”, said the statement.
“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, it 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 money laundering”.
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 a government advisory is not sufficient when thousands of people have already lost money in cryptocurrency,” said Pavan Duggal, a cyber expert and lawyer with India’s top court.
“The government has the sovereign duty to come up with a legal framework to regulate cryptocurrencies and protect genuine investors,” he said.
Last week, India’s capital market regulator said it was in talks with the government and India’s central bank on how to regulate cryptocurrencies.
Digital currencies are proving very popular in countries across Asia, with many retail investors giving up their daily jobs to trade them full time in countries such as Japan and South Korea, which together make up for more than half the global trading volumes by some estimates.
On Thursday, South Korea’s government said it would impose additional measures to regulate speculation in cryptocurrency trading within the country. Reuters