“We are evaluating the developing market for Bitcoin and other forms of virtual currency,”s Securities Division Director Alan Wilson said. “We are studying how virtual currency is used to pay for products or services and how consumers are invited to invest in virtual currency as a commodity. Both uses have certain attractions, and both have definite risks.”
Virtual currency, including digital and crypto-currencies, such as Bitcoin, are gaining in popularity and controversy and the Securities Division and Financial Institutions Division are charged with protecting consumers and the marketplace from fraud and other financial crimes.
Virtual currency can be purchased or sold online through currency exchanges, and are used to purchase goods or services where accepted. A growing number of merchants are accepting Bitcoin in addition to traditional currency. Virtual currency is stored in an electronic wallet, known as an e-Wallet, which facilitates payments online via a computer or mobile device, such as a smartphone.
“State consumers are encouraged to become educated before using or investing in virtual currency.
Cynthia Richards, Financial Institutions director, said “this type of currency is only as dependable as the business platform creating it, so do your homework before entering into any virtual currency transaction.”
One of the largest Bitcoin exchanges, Mt. Gox, shut down earlier this year after claiming it had lost more than $350 million of virtual currency after being hacked. Mt. Gox will be liquidated and its assets distributed to creditors. Investors may never see their money again.
Since Bitcoin was first introduced in 2009, its value has fluctuated dramatically but remained on an overall-upward trend. But Wilson and Richards said that due to its complex and currently unregulated status, consumers and investors should become knowledgeable about this complex new field before making any investment decisions.
Consumer should consider:
• Virtual currency is subject to minimal regulation and not insured by the Federal Deposit Insurance Corp.
• The currency is susceptible to cyber-attacks.
• Investments tied to virtual currency tend to be volatile and may be unsuitable for most investors.
• Unregulated companies that may lack appropriate internal controls and be more susceptible to fraud and handle transactions.
• Investors must rely upon the strength of their own computer security systems, and third parties’ security systems, to protect their e-Wallets.
For more information about the risks associated with virtual currency, call the state’s Red Flags hotline at 1-800-704-5533.