Chesterton Tribune

 

 

Investor advisory issued on risk of virtual currencies like Bitcoin

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Indiana Secretary of State Connie Lawson has issued an advisory cautioning investors to consider the risks associated with virtual currencies.

“Unlike traditional currency, these alternatives typically are not backed by tangible assets, are not issued by a governmental authority and are subject to little or no regulation,” Lawson said in a statement released on Monday. “The value of virtual currencies is highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts.”

“Virtual currency is an electronic medium of exchange that can be bought or sold through virtual currency exchanges and used to purchase goods or services where accepted,” the statement said. “These currencies are stored in an electronic wallet, also known as an e-Wallet, which is a digital system that allows payments online via a computer or mobile device such as a smartphone.”

Virtual currency, which includes digital and crypto-currency, are gaining in both popularity and controversy. Growing numbers of merchants, businesses, and other organizations currently accept Bitcoin, one example of crypto-currency, in lieu of traditional currency. Last week, the U.S. Federal Election Committee said that Bitcoin could be used for donations to political action committees.

Recently, however, one of the largest Bitcoin exchanges, MtGox, shut down after claiming to be the victim of hackers and losing more than $350 million of virtual currency, the statement said. “Despite the controversy, virtual currency may find its way into your e-Wallet.”

“Investors should be aware that investments that incorporate virtual currency present very real risks,” Indiana Securities Commissioner Carol Mihalik said. “It pays to do your homework before you invest in any investment opportunity including virtual currency,”

Some common concerns which investors should consider before investing in any offering containing virtual currency include the following:

* Virtual currency is subject to minimal regulation, is susceptible to cyber-attacks, and there may be no recourse should the virtual currency disappear.

* Virtual currency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.

* Investments tied to virtual currency may be unsuitable for most investors due to their volatility.

* Investors in virtual currency will be highly reliant upon unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.

* Investors will have to rely upon the strength of their own computer security systems as well as security systems provided by third parties to protect their e-Wallets from theft.

 

 

Posted 5/13/2014