Despite a boom in trade that has seen prices soar, cryptocurrencies "don't have intrinsic value and are not backed by any kind of assets," the Indian finance ministry said in a statement.
"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.
US Federal Reserve boss Janet Yellen has said bitcoin is not money and called on banks to be certain their digital currency transactions adhere to anti-money laundering statutes
GMT 10:26 2018 Wednesday ,17 January
Bitcoin bombs, cryptocoins crashGMT 09:33 2018 Monday ,15 January
Cryptocurrency rivals snap at Bitcoin's heelsGMT 08:45 2018 Saturday ,13 January
Japan's 'Virtual Currency Girls' debutGMT 07:58 2018 Thursday ,04 January
ECB governor calls for tax, regulationGMT 09:13 2017 Friday ,29 December
Bitcoin falls on S.Korea curbsMaintained and developed by Arabs Today Group SAL.
All rights reserved to Arab Today Media Group 2021 ©
Maintained and developed by Arabs Today Group SAL.
All rights reserved to Arab Today Media Group 2021 ©
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