Investor alert: Bitcoin and other virtual currency-related investments

The US Securities and Exchange Commission (SEC) is warning investors that getting involved in bitcoin is a risky business that could leave them open to fraud.

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to make investors aware about the potential risks of investments involving Bitcoin and other forms of virtual currency.

The rise of Bitcoin and other virtual and digital currencies creates new concerns for investors, the watchdog says. „A new product, technology, or innovation – such as Bitcoin – has the potential to give rise both to frauds and high-risk investment opportunities. 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.”

There is a long history of crooks using innovations in finance and technology to carry out fraud and the SEC says that investors should be cautious of „guaranteed” returns and „too good to be true” offers which could be nothing more than ponzi schemes.

And because bitcoin is difficult to trace, borderless and has no central authority it is very difficult to recover fraud losses. The laundry list of concerns also includes the crypto-currency’s volatility, government regulation, a lack of insurance and security worries relating to exchanges and wallets, especially in light of the recent Mt. Gox collapse.