 "Bitcoin puzzles regulators; advisory likely to warn of risks")
While authorities and experts are becoming more worried about its potential money laundering risks, there are also concerns about this new phenomenon snowballing into an 'e-ponzi' or an electronic version of investor fraud, given the growing promotion of bitcoin as an investment product without any enabling regulations for them.
"At least a public advisory may be issued soon to warn against possible risks associated with bitcoins," a senior official said, while adding that the pressure has increased on regulatory and enforcement agencies in India after latest moves by China and France on this front.
More From This Section
"The fact remains that regulators are scrambling for ways to regulate this entire gamut of digital currency, as it is a totally new concept in India and even the jurisdiction is not clear as yet on who should regulate them," he said.
While US has declared that all prevailing money laundering laws would apply to bitcoins, China has asked its banks and other financial institutions not to deal in bitcoins and the public has been asked to do so at their own risk. Besides, France last week warned its banks about risks related to bitcoins.
At the same time, the experts are also raising concerns about cyber security issues, given the huge scope of money laundering and other illegal activities through use of an unregulated digital currency concept.
"The real fear is that Bitcoin can be used to help money laundering," said V Rajendran, advocate and President, Cyber Society of India.
"The concept of a digital currency, unregulated by any monetary authority, is a recipe for disaster. The RBI must step in and regulate this immediately. Lured by so-called appreciation in bitcoin value, people may invest in this and risk losing everything," he added.
After a phenomenal surge in the exchange rate for Bitcoin from little over $200 to well past $1,000 during November, the rates have seen an extreme volatility over the past few days -- falling suddenly to near $800 amid China's move and then soaring past $1,200 level.
"Bitcoins have no backing of any government which means in the event of a liquidity crisis, nobody is bound by law to help," said S N Ravichandran, an anti-cyber crime expert who helps police and other authorities regularly.
"The source of traditional hard currency converted into Bitcoin is unknown, no records are being kept. So, Bitcoin can very well be used to finance terror.
"We know what happened with Liberty Reserve, another digital currency. China and France have warned its banks from dealing with Bitcoin," he added.