The Financial Industry Regulatory Authority has issued an alert
to warn investors of the fraud risks of using Bitcoin, as
regulators start to flex their authority over the fledgling virtual
currency.
The recent loss of nearly a half-billion dollars from a major
bitcoin exchange is forcing U.S. regulators to confront burgeoning
questions about their authority--and responsibility--to oversee
digital currency.
Besides the risks involved with speculative trading in bitcoins,
Finra said there are companies that fraudulently claim to offer
bitcoin payment platforms and other bitcoin-related products and
services.
"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," said Gerri Walsh, Finra's senior vice
president for investor education.
The regulatory agency also said platforms that buy and sell
bitcoins can be hacked and can fail, and unlike U.S. banks and
credit unions, there are no safeguards for bitcoins.
Finra isn't the only agency with concerns. The firm noted the
Securities and Exchange Commission suspended securities trading of
Imogo Mobile Corp. in February after it announced testing of a new
mobile platform for bitcoin a few weeks earlier.
Meanwhile, Japan's government said that bitcoin wouldn't be
treated as a currency or financial instrument, although the
transactions are subject to commercial taxes.
Bitcoin is a payment system introduced in 2009 that allows
computer users to create digital "coins" by solving complex
mathematical problems. Owners can send and receive bitcoins using
software and swap them on exchanges for dollars or other fiat
currencies, and a small but rising number of merchants accept it,
such as Overstock.com Inc.
Overstock.com recently said bitcoin holders have spent more than
$1 million at Overstock.com since Jan. 29, and said it expected
bitcoin sales to reach $10 million or $15 million this year, The
Wall Street Journal reported last week.
Write to Everdeen Mason at everdeen.mason@wsj.com
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