Bitcoin Investment Warning Issued by FINRA

The Financial Industry Regulatory Authority (FINRA) has issued a new warning to caution investors about the widely fluctuating prices and potential for fraud associated with buying and using the digital currency Bitcoin.

Bitcoin is a cryptocurrency payment system, which was introduced in 2009 to allow computer users to exchange digital “coins.” The currency’s validity is secured through a complex encryption formula.

Owners can send and receive Bitcoins using software and swap them on exchanges for dollars or other currencies, but only a small number of merchants accept the currency.

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On March 11, FINRA released a new investor alert called “Bitcoin: More than a Bit Risky”, explaining the significant risks of speculative trading in Bitcoins and the risk of fraud related to companies claiming to offer Bitcoin payment platforms and other Bitcoin services.

Gerri Walsh, FINRA’s Senior Vice President for Investor Education, indicated in the release that speculators drawn to Bitcoin trading should understand that prices fluctuate widely and wildly. In addition, any chance of return can be deceiving to buyers.

Bitcoin investor fraud is also a real danger, according to the non-govermental regulatory agency.

On February 19, 2014, the Securities and Exchange Commission (SEC) suspended trading in the securities of Imogo Mobile Technologies Corp, who were testing new mobile platforms for Bitcoin. The decision to suspend testing of these platforms was made because platforms that buy and sell Bitcoins can be hacked, and to date, at least two have failed to protect against hacking, resulting in losses of nearly a half billion dollars.

The risk of Bitcoin trading is unlike that of investing in U.S. banks and credit unions. There are no certain guarantees or safety to depositors, because there are no safeguards provided to Bitcoins. Unlike banks, wallet firms won’t invest your money. Nor do they guarantee the same protections afforded banks by institutions like the FDIC. Therefore, if your “digital wallet” is hacked and stolen from, there is nothing the owner can really do to gain back his or her losses.

Tags: Bitcoin

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