Fin min must decide whether to ban or regulate bitcoin trade

Fin min must decide whether to ban or regulate bitcoin trade

FINALLY, the government woke up on Friday to press the alarm bell against cryptocurrencies. The finance ministry publicly admitted that there is a “phenomenal increase” in the prices of virtual currencies, including bitcoins, which are like “Ponzi schemes”. Undoubtedly, the finance ministry's invocation of the Ponzi scheme is noteworthy. It is named after Charles Ponzi, the notorious scamster who duped investors of about $20 million way back in the 1920s. The US regulator defines a Ponzi scheme as an “investment fraud” that pays existing investors with funds collected from new investors. Eventually, the scheme caves in when it fails to lure new investors or a large number of existing investors decide to cash out.

Many Indians are tempted to make a quick buck by investing in cryptocurrencies, particularly bitcoins. These promise phenomenal returns. One bitcoin, which was available for $0.09 in 2010 had surged to almost $20,000 in just seven years. It, however, had a rollercoaster ride, where for every winner there were several losers. The finance ministry admits that “there is a real and heightened risk of investment bubble” and “sudden and prolonged crash” would expose retail consumers who would lose their hardearned money. The ministry is also apprehensive that the virtual currency could be used for subversive activities such as terror-funding, drug-trafficking or money-laundering.

The RBI has been issuing similar cautionary notes since 2013. Despite cautions from the guardians of the economy, about a dozen bitcoin exchanges are flourishing in the country. Why is the government soft on them? Is it because the rich and powerful are associated with this new rage? The finance ministry must not tackle this matter half-heartedly by merely issuing cautionary notes. It will be failing in its institutional duty if it did not move proactively to protect gullible investors from a Ponzi-like scheme. No virtual currency, not even the popular bitcoin, has been accepted as legal tender by any country. Countries like South Korea, Bolivia, Ecuador, Kyrgyzstan and Bangladesh have already banned cryptocurrencies. It is the time for India to act.

Courtesy : The Tribune Editorial