Yet again issuing a strict warning against virtual currencies, the Ministry of Finance on Friday said that risk of investment bubble of the type seen in ponzi schemes can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money. The ministry also said that virtual currencies such as Bitcoin have no 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. Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes. VCs are stored in a digital or electronic format, making them vulnerable to hacking, loss of password, malware attack etc. which may also result in permanent loss of money. As transactions of VCs are encrypted they are also likely being used to carry out illegal/subversive activities, such as terror-funding, smuggling, drug trafficking and other money-laundering Acts,” the press release said.
Virtual currencies not backed by government
VCs are not backed by Government fiat. These are also not legal tender. Hence, VCs are not currencies. These are also being described as ‘Coins’. There is, however, no physical attribute to these coins. Therefore, Virtual ‘Currencies’ (VCs) 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.
Already issued warning
The users, holders and traders of VCs have already been cautioned three times, in December, 2013, February, 2017 and December, 2017, by Reserve Bank of India about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin and/ or other VCs. RBI has also clarified that it has not given any licence/ authorization to any entity/ company to operate such schemes or deal with Bitcoin or any virtual currency. 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 in them.
Legendary investors from India and around the world have time and again cautioned investors to stay away from it. Thomas Carper, a senior United States Senator once remarked, “Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.”
No fundamental value
Legendary investor Warren Buffett had said in an interview to CNBC in 2014 that virtual currencies especially bitcoin is a “mirage”, adding that investors should “stay away from it”. In the same interview, Warren Buffett said, “It’s a method of transmitting money. It’s a very effective way of transmitting money and you can do it anonymously and all that. A cheque is a way of transmitting money, too. Are cheques worth a whole lot of money just because they can transmit money?… The idea that it has some huge intrinsic value is just a joke in my view.” Reiterating his belief on Bitcoins and cryptocurrencies, Warren Buffett told Marketwatch in October this year: “You can’t value bitcoin because it’s not a value-producing asset,” adding that it is a “real bubble in that sort of thing”.