Bitcoin: Bitcoin trading in India? Why it's still a big no-no

NEW DELHI: The government on Friday cautioned people against the risk of virtual currencies , saying they are not legal tender and do not have any regulatory permission or protection in India.In one of the sternest warnings by the authorities, the government said virtual currencies are not backed by government fiat. The caution comes against the backdrop of a surge in interest in such instruments, fuelled by astronomical returns in recent days. “These are also not legal tender. Hence, virtual currencies are not currencies. These are also being described as ‘coins’. There is, however, no physical attribute to these coins,” a government statement said.“Therefore, virtual ‘currencies’ (VCs) are neither currencies nor coins. The government or RBI has not authorised any VCs as a medium of exchange. Further, the government or any other regulator in India has not given licence to any agency for working as exchange or any other kind of intermediary for any VC,” it added.The statement said there has been a phenomenal increase in recent times in the price of VCs, including Bitcoin, in India and globally. It said 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. “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 statement said. “Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes,” it added.Elaborating on the way these currencies are traded, the government said they are stored in digital, electronic format, making them vulnerable to hacking, loss of password, malware attack, 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 statement added. “Persons dealing in them must consider these facts and beware of risks involved in dealing in VCs.”The government said users, holders and traders of VCs have already been cautioned three times, in December, 2013, February, and December by the RBI 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/authorisation to any entity or 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 therein,” the statement said.