The government on Friday compared virtual currencies to ponzi schemes, and warned people of risks in dealing with them – including that it could result in “permanent loss of money”.

In a release, the Ministry of Finance said virtual currencies are not legal tender and do not have “any regulatory permission or protection” in India. The ministry said there was a “real and heightened risk” that the rise in the value of virtual currencies could be similar to investment bubbles that end up in sudden crashes with people losing hard-earned money.

The government urged users to be “alert and extremely cautious” of getting trapped in “such ponzi schemes”. Virtual currencies could also be used to carry out illegal activities such as terror funding, smuggling and drug trafficking, the Centre said.

“The VCs [virtual currencies] don’t have any intrinsic value and are not backed by any kind of assets,” the release said. “The price of bitcoin and other VCs therefore is entirely a matter of mere speculation resulting in spurt and volatility in their prices.”

The government said it had not given licences to any agencies working as intermediaries for virtual currencies.

The advisory from the ministry follows similar notifications from the Reserve Bank of India, which has repeatedly warned users against virtual currencies. The value of Bitcoin – the most popular cryptocurrency – has surged in recent months, to over $16,000 apiece in December.