The North American Securities Administrators Association (NASAA) issued an investor advisory Tuesday warning about the risks of trading in and using virtual currencies, such as Bitcoin.
NASAA notes that the virtual currency, which includes digital and crypto-currency are gaining popularity, as growing numbers of merchants, businesses and other organizations are starting to accept Bitcoin in lieu of traditional currency.
However, they are also increasingly controversial, it notes; particularly as one of the largest Bitcoin exchanges, MtGox, recently shut down after claiming to be the victim of hackers and losing more than $350 million of virtual currency. Yet, despite the rising controversy, NASAA says, “virtual currency may find its way into your e-wallet.”
And so, it warns investors that virtual currency is subject to minimal regulation, it is susceptible to cyber-attacks, and there may be no recourse should the virtual currency disappear. These accounts are not covered by deposit insurance, and they may be unsuitable for most investors due to their volatility, it also warns.
“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,” it says. Additionally, NASAA notes that investors will have to rely upon the strength of their own computer security to prevent theft.
“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,” said Andrea Seidt, NASAA president and Ohio Securities Commissioner.
“The value of virtual currencies is highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts,” Seidt said. “Investors should be aware that investments that incorporate virtual currency present very real risks.”