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The Financial Industry Regulatory Authority (FINRA) issued a new investor alert called Bitcoin: More than a Bit Risky to caution investors that buying and using digital currency such as Bitcoin carry risks. While speculative trading in bitcoins carries significant risk, there is also the risk of fraud related to companies claiming to offer Bitcoin payment platforms and other Bitcoin-related products and services.
FINRA’s Investor Alert adds to a growing chorus of Bitcoin-related warnings from other regulators. The threat of Bitcoin-related fraud is a real danger for investors looking to make a quick profit from Bitcoin. For example, on February 19, 2014, the SEC suspended trading in the securities of Imogo Mobile Technologies Corp, which had announced testing of a new mobile platform for Bitcoin a few weeks earlier.
“Speculators drawn to Bitcoin trading should understand that Bitcoin prices have fluctuated widely, and wildly, almost from the currency’s inception,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “Investors looking to get in on the ground floor of a Bitcoin-related company should realize that fraudsters may see the latest digital currency trend as a chance to steal their money through old-fashioned fraud.”
In addition to warning of the dangers of Bitcoin-related scams and speculation, Bitcoin: More than a Bit Risky provides the investing public with a brief description of how Bitcoin works and discusses many of the risks associated with buying and selling Bitcoin. As recent events make clear, platforms that buy and sell bitcoins can be hacked, and some have failed. In addition, unlike U.S. banks and credit unions that provide certain guarantees of safety to depositors, there are no such safeguards provided to bitcoins residing in so-called “digital wallets.” FINRA’s Alert covers the Bitcoin landscape, providing consumers with a clear summary of the uses of Bitcoin and the attendant risks of each.