Just days after Bitcoins hit a record high of just under $11,800, the Reserve Bank of India (RBI) on Tuesday reiterated its concerns about the cryptocurrency amid fears that a rapidly swelling bubble could burst in a spectacular fashion.
The RBI said it wanted to reinforce its previous message to “users, holders and traders of virtual currencies (VCs) including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs.”
The statement was issued after the cryptocurrency, which trades 24 hours a day and seven days a week, climbed as high as $11,799.99 on the Luxembourg-based Bitstamp exchange on Sunday. The RBI had previously said those trading in virtual currencies were doing so at their own risk, given that the central bank has not given a licence or authorisation for any company to deal in such cryptocurrencies.
“In the wake of significant spurt in the valuation of many VCs and rapid growth in initial coin offerings (ICOs), the RBI reiterates the concerns conveyed in the earlier press releases,” the RBI said on Tuesday.
The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities. “VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them,” the RBI had said.
Payments by VCs, such as Bitcoins, take place on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer problems, disputes or charge backs. “There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value,” the RBI had said.
It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. “Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks. There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws,” it said.