It seems like everything on the Internet these days is in danger of being hacked. Passwords have been lifted, bank accounts have been broken into, and even the biggest companies like Microsoft or Google aren’t safe from an attack. With the increasing popularity of cryptocurrencies such as Bitcoin, questions of safety and trust are starting to surface.
The U.S. Securities and Exchange Commission shares those concerns.
“A new product, technology, or innovation—such as Bitcoin—has the potential to give rise both to frauds and high-risk investment opportunities,” the SEC wrote on its website. “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.”
Just this year Bitcoin exchange Mt. Gox went bankrupt due to a hack attack, and Bitcoin bank Flexcoin shut down after hackers stole all its digital currency. Virtual currency was even on the North American Securities Administrators Association (NASAA) Top 10 threats to investors for 2013.
But being susceptible to hackers isn’t the SEC’s only concern. Cryptocurrency such as Bitcoin is not insured, has a history of volatility, is not legal tender, doesn’t have an established track record of credibility and trust, and has limited recovery options, according to the SEC.
“Fraudsters target any group they think they can convince to trust them. Scam artists may take advantage of Bitcoin users’ vested interest in the success of Bitcoin to lure these users into Bitcoin-related investment schemes. The fraudsters may be (or pretend to be) Bitcoin users themselves,” the SEC wrote.
The SEC isn’t saying to avoid cryptocurrencies altogether, but it is advising investors to tread carefully. If the concerns still don’t outweigh an investor’s desire to invest, the SEC says to watch out for potential warning signs of fraud such as “guaranteed” high investment returns, unsolicited offers, unlicensed sellers, no net worth or income requirements, “sounds too good to be true,” or pressure to buy right now.
“Before making any investment, carefully read any materials you are given and verify the truth of every statement you are told about the investment,” the SEC wrote.