5 Bitcoin Warning Signs In New Federal Investor Alert
The U.S. Securities and Exchange Commission today issued an investor alert on Bitcoins, including a laundry list of reasons today why investors should tread carefully and why people who hold Bitcoins might be targeted by scammers.
Among the reasons why the feds aren't bullish on Bitcoin and other cryptocurrencies:
Too New: "Potential investors can be easily enticed with the promise of high returns in a new investment space and also may be less skeptical when assessing something novel, new and cutting-edge," the SEC said.
Not Insured: Bitcoins held in a digital wallet aren't insured. By contrast, most U.S. bank accounts are insured by the Federal Deposit Insurance Corporation.
Questionable Stability: Crytocurrencies have a history of volatility. The exchange rate of Bitcoin has previously dropped 50 percent in one day, according to the SEC.
Future Regulation Could Be a Problem: Cryptocurrencies aren't government regulated, however future regulation abroad could present an issue.
Security Issues: The same way a pickpocket can snatch your purse, a hacker can go after significantly larger sums of money in a person's digital wallet. Hacks, malware and other security bugs could also cause the exchanges to shut down temporarily or permanently - leaving the question of how a person could retrieve their money.
The warning also mentioned Mt. Gox, the Bitcoin exchange in Japan that collapsed earlier this year after hackers apparently stole hundreds of millions of dollars worth of cryptocurrency.
"Many Bitcoin users participating on the exchange are left with little recourse," the SEC warning said.
The SEC has previously issued a warning about Bitcoin-related Ponzi schemes.