The SEC is urging investors to proceed with caution when evaluating potential investments related to bitcoin.
Bitcoin-related investment opportunities may come with a heightened risk of fraud, the SEC warned in an investor alert.
In the alert, the SEC said the rise of bitcoin and other virtual and digital currencies creates new concerns for investors. New products, technologies, or innovations such as bitcoin may give rise to frauds and high-risk investment opportunities, according to the SEC.
Investors may find it difficult to resist promises of high investment returns that fraudsters may make related to bitcoin, the SEC said. The SEC suggests that investors consider the following risks when evaluating investments involving bitcoin:
Bitcoin is not insured. Bitcoins held in a digital wallet or bitcoin exchange do not have insurance protections.
Bitcoin has a history of volatility. The exchange rate of a bitcoin has dropped more than 50% in a single day, the SEC said.
Use may be restricted. Bitcoins are not legal tender, and federal, state, or local governments may restrict the use and exchange of bitcoins, the SEC said.
Security is a concern. Fraud, technical glitches, hackers, or malware may cause bitcoin exchanges to stop operating or permanently shut down, the SEC said. And there is potential for hackers to steal bitcoins. The Mt. Gox bitcoin exchange in Japan recently collapsed after hackers apparently stole bitcoins worth millions of dollars from the exchange, the SEC said.
Bitcoin lacks an established track record.
Bitcoin is a recent invention without a long-term record of
credibility and trust, the SEC said.