Regulators from the United States of America warned on Tuesday about the risk factors linked to digital currencies such as Bitcoin. They said that before trading in virtual currencies, investors should be aware of the risks. This comes as the latest warning against Bitcoin by American regulators.
NASAA Regulators Warn Against Using Bitcoin
The president of the North American Securities Administrators Association (NASAA) said in a statement,
“The value of virtual currencies is highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts.”
To be fair, it is a valid argument that digital currencies are volatile; however, understanding how they work is not as difficult as is it is made out to be. NASAA is a group of state securities regulators from Washington. An advisory has been created on the NASAA website, expanding on the risks associated with virtual currencies. It’s written,
“It pays to do your homework before you invest in any investment opportunity, including virtual currency. If you have any questions about investing in virtual currency, contact your state or provincial securities regulator.”
The mentioned risks are:
- Digital currencies do not have much regulation.
- Users can be hacked, virtual currencies aren’t insured by the Federal Deposit Insurance Corporation (FDIC).
- The currency is volatile.
- Investors are responsible to safeguard their coins from their computer security systems.
- Companies associated with digital currencies are unregulated which may make them prone to fraud and theft.
The advisory also talks about the failed Bitcoin exchange, Mt.Gox, which lost around $350 million in digital currency from hacking. The exchange had filed for bankruptcy citing that it had lost 850,000 bitcoins. It later said to have found 200,000 bitcoins in an old formatted wallet. It has since been given the OK to start bankruptcy proceedings and liquidation.
Besides mentioning the risks associated with Bitcoin, the advisory states that digital currencies are properties or commodity like. The IRS made that pretty clear when it said that Bitcoin and other virtual currencies will be taxed as properties.
Even though there are risks involved, the NASAA has written, “Despite the controversy, virtual currency may find its way into your e-Wallet.”