In an investor alert titled "Bitcoin: More than a Bit Risky," the
Financial Industry Regulatory Authority (FINRA) said recent events
such as the bankruptcy of Bitcoin exchange operator Mt. Gox have
spotlighted some of the currency's risks.
"Speculators drawn to bitcoin trading should understand that bitcoin
prices have fluctuated widely, and wildly," said Gerri Walsh,
FINRA's 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."
Launched in 2009, Bitcoin offers a way for people to conduct
transactions over the Internet, with bitcoins that they can buy and
sell online or in person. Supporters say the anonymity that Bitcoin
offers lowers the risk of fraud, while critics say that same
anonymity and lack of central oversight make it easier to commit
The market for the currency was rocked last month when Mt. Gox, once
the world's largest bitcoin exchange, ceased operations, and soon
after filed for bankruptcy in Japan and the United States. Mt. Gox
said it may have lost 750,000 bitcoins, worth hundreds of millions
of dollars, in a hacking attack.
The week before Mt. Gox shut down, the U.S. Securities and Exchange
Commission said it had halted trading in securities of Imogo Mobile
Technologies Corp, which was testing a mobile bitcoin platform, amid
questions about its business. (http://www.sec.gov/litigation/suspensions/
Also on Tuesday, Texas Securities Commissioner John Morgan said he
had ordered Balanced Energy LLC and its president, Kirk Johnson, to
stop marketing investments in West Texas oil wells that had not been
properly registered — and for which they accepted bitcoins as
payment without disclosing the risks.
Balanced Energy, based in the Dallas suburb of Southlake, Texas, did
not immediately respond to requests for comment.
Federal Reserve Chair Janet Yellen has said the Fed has no
jurisdiction over bitcoins, but that Congress should look into
regulating virtual currencies. No clear plan has emerged.
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FINRA, an independent, industry-funded regulator for more than 4,100
securities firms that employ about 632,000 brokers, reminded
prospective bitcoin investors to never speculate with money they
cannot afford to lose and that platforms for the currency can be
hacked or fail.
It also said Bitcoin has been used in drug dealing, money laundering
and other crimes, and that law enforcement actions could leave
people unable to use or trade their bitcoins.
Bitcoin Foundation, which advocates the use of the currency, agreed
that investors should understand the risks.
"We have been saying all along that investors should not invest more
in Bitcoin than they are willing to lose," spokeswoman Jinyoung
Englund said. "Bitcoin is a five-year-old technology, and we are
just starting to see responsible entrepreneurs build reliable
services for this ecosystem."
(Reporting by Jonathan Stempel in New
York; additional reporting by Emily Flitter; editing by Jonathan Oatis)
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