"There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash," it said. Bitcoin prices plunged by almost 40 percent from its record high of $19,500 this month as investors cashed out following the wildly volatile currency's stratospheric rise.
Analysts and governments have repeatedly warned about a bubble that could burst at any moment as investors, many inexperienced, piled into the currency. India's government said consumers needed to be "extremely cautious as to avoid getting trapped in such Ponzi schemes".
Its warning came a day after South Korea, a hotbed for cryptocurrency trading, said it would ban anonymous trading of virtual currencies. On Tuesday Israel announced a move to ban trading in cryptocurrency-based companies on the Tel Aviv market until it can regulate transactions involving digital coins. The vice-president of the European Central Bank has also expressed concern about the relentless rise in the value of bitcoin.