Bitcoin crosses $14,000-mark; but RBI warns people of risks
The world's most popular cryptocurrency, Bitcoin, has surpassed the $14,000-mark (Rs. 9lakh), recording an over 1400% rise compared to its below $1,000 price at the beginning of 2017. Due to the "extraordinary" rise in value, many are looking to invest in the virtual currency. Meanwhile, Reserve Bank of India issued a warning to the public of the risks of cryptocurrencies. Here's what RBI said.
Problems and risks for cryptocurrency users, dealers: RBI
Even as cryptocurrencies are gaining strength, India's central bank has issued a warning to the public, following the sudden surge in the Bitcoin value in the recent weeks. For the third time since Feb'13, it cautioned cryptocurrency users, holders, and traders to create awareness about the potential economic, financial, operational, legal, customer protection and security risks associated in dealing with virtual currencies.
No license issued to any entity to deal with cryptocurrencies
RBI stated, "In the wake of significant spurt in the valuation of many VCs and rapid growth in Initial Coin Offerings, RBI reiterates the concerns conveyed in the earlier releases." It has clarified that no license/authorization was given to any entity/company for cryptocurrency operations.
Previous virtual currency-related warnings issued by RBI
The central bank initially warned the cryptocurrency investors of the risks involved in trading in virtual currencies on 24 Dec'13, when the Bitcoin was trading at $667. Later, in another press release on 1 Feb'17, the RBI again cautioned investors and holders of virtual currencies. The value of Bitcoin was only $985 at the time, compared to the present $14,700 (on 7 Dec'17).
How much should you invest in virtual currencies?
Meanwhile, New York-based Bitcoin investor Pankaj Jain has advised smaller investors not to spend more than 1-3% of their net worth in virtual currencies. He advised high-net-worth investors to refrain from investing over 5-10% of their money in the cryptocurrencies. As the present Bitcoin price is very high, most people can only purchase a fraction of it; Bitcoin soared above $14,700 (Rs. 9.5-lakh).
People can't invent currency out of thin air: Top banker
JPMorgan Chase CEO Jamie Dimon said: "Bitcoin is a fraud and will blow up. The currency isn't going to work." Dimon's comments follow the rapid price-surge of Bitcoin without underlying asset or value-base, highlighting the absence of an underlying monetary base for supporting Bitcoin's value.
Bitcoin is not a value-producing asset, says Warren Buffett
In 2014, American business magnate and a successful investor, Warren Buffett, cautioned investors to "stay away from" Bitcoin calling it a "mirage". He added, "The idea that it has some huge intrinsic value is just a joke." Also, in Oct'17, he reiterated his views, saying Bitcoin can't be valued as it isn't a value-producing asset but a "real bubble in that sort of thing."
It's just a method of transmitting money
Warren Buffett said: "It's (Bitcoin) a very effective way of transmitting money and you can do it anonymously and all that. A cheque is a way of transmitting money, too. Are cheques worth a whole lot of money just because they can transmit money?"
