India cautions investors, compares bitcoin to 'Ponzi scheme'

India cautions investors, compares bitcoin to 'Ponzi scheme'
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India’s finance ministry cautioned investors on Friday about the risks digital currencies such as bitcoin, likening them to “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 said in a statement. “Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes.”

The ministry noted that India currently has no regulatory framework to protect investors who purchase cryptocurrencies and cautioned that investors who want to trade them do so “entirely at their risk.”

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It also warned that virtual currencies have been used for “terror-funding, smuggling, drug trafficking and other money-laundering Acts.”

The world's second most-populous country is currently exploring how to regulate bitcoin. India’s capital market regulator said last week that it has spoken with the government and central bank on regulating cryptocurrencies.

Governments around the world are scrambling to get caught up on cryptocurrency and regulate it following its boom over the past year. The market capitalization of digital tokens and coins exploded in 2018, with the two most prominent currencies, bitcoin and ethereum, rising by more than 1,400 percent and 8,900 percent, respectively, over the past year.

Regulators in Russia, China and South Korea have taken notice and issued crackdowns.