Indian gov't warns people on risks of investing virtual currencies

NEW DELHI -- India government Friday cautioned people especially investors about risks of trading in virtual currencies (VCs) or cryptocurrencies such as Bitcoin, officials said.

"There has been a phenomenal increase recently in the price of VCs including Bitcoin, in India and globally. The VCs don't have any 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," a statement issued by India's finance ministry said.

The ministry said VCs are not backed by government decree and described them as Ponzi schemes.

"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 exposing investors, especially retail consumers losing their hard-earned money," the ministry officials said. "Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes."

A Ponzi scheme is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

Bitcoin, has emerged as world's biggest and best-known cryptocurrency and has gained more than 19-fold this year.

"The government also makes it clear that 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 therein," the finance ministry officials said.