RBI warns of risks of dealing in Bitcoins, other virtual currencies

Reserve Bank of India has cautioned the general public about the potential risks associated with the unregulated and free rising virtual currencies (VCs) including Bitcoins.

RBI's warning comes as the Bitcoin rocketed to a lifetime high well above $16,000 on Thursday after climbing some 67 per cent over one week, igniting fears of a cryptocurrency bubble about to burst.

RBI has drawn public attention to its press release issued on 4 Dcember 2013, which had cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs.

In a press release dated 1 February 2017, RBI has also clarified that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any VC.

In the wake of significant spurt in the valuation of many VCs and rapid growth in initial coin offerings (ICOs), RBI on Thursday reiterated the concerns conveyed in the earlier press releases.

''The Reserve Bank of India advises that it has not given any licence / authorisation to any entity / company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with virtual currencies will be doing so at their own risk,'' the RBI release stated.

On Thursday, the largest US cryptocurrency exchange struggled to keep up with record traffic as the price surged, with an upcoming launch of the first bitcoin futures contract further fueling investor interest.

Market analysts say that the price run-up is a bubble that has been driven mostly by speculation, leaving bitcoin vulnerable to a sharp reversal.

The world's biggest cryptocurrency has surged seventeen-fold in value so far this year.

JPMorgan Chase & Co chief executive Jamie Dimon famously called bitcoin a fraud in September.

Proponents say bitcoin is a good medium of exchange and a way to store value, much like a precious metal. They also argue it is preferable to traditional currencies because it is not subject to central bank manipulation.