“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. 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 authority further warned about the technical risks involved:
“VCs are stored in digital/electronic format, making them vulnerable to hacking, loss of password, malware attack etc. which may also result in permanent loss of money.”
The ministry used the cliché criticism that cryptocurrencies could be used to fund terrorism, drug trafficking and also to aid money laundering.
As cryptocurrencies are not backed by government issued fiat, the authority earlier stated that they cannot be considered as legal tender. Last week, India’s apex financial regulator started taking action by raiding bitcoin exchanges and sending notices to traders.
It was rumored that Indian government and RBI are in talks on how to regulate cryptocurrencies.