A long list of central banks, federal governments, departments and state governments have warned about the usual risks associated with the peer-to-peer decentralized digital currency bitcoin. The latest to do so is the United States Securities and Exchange Commission (SEC), which is garnering the attention of the bitcoin community.
The SEC issued an official consumer alert Wednesday to investors in order to inform them regarding the threats and hazards that bitcoin and other virtual currencies pose. Although it put forward a number of dangers related to bitcoin, the biggest concern it has is with the investors themselves.
According to the alert, the SEC fears that investors will simply negate any common sense that they may have had prior to investing in bitcoins, especially when unscrupulous financiers attempt to offer them a deal of a lifetime that they claim will generate tremendous dividends.
“A new product, technology, or innovation—such as Bitcoin—has the potential to give rise to both frauds and high-risk investment opportunities,” the notice states. “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.”
It highlighted a number of warning signs to be aware of:
- “Guaranteed” high investment returns
- Unsolicited offers
- Unlicensed sellers
- No net worth or income requirements
- Sounds too good to be true
- Press to buy RIGHT NOW
Fraudsters and promoters of high-risk investments, says the SEC, might target bitcoiners. Since early adopters of bitcoins might have generated obscene amounts of wealth, dishonest culprits may promote it to bitcoin users and convince them 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 SEC stated in its alert. “The fraudsters may be (or pretend to be) Bitcoin users themselves. Similarly, promoters may find Bitcoin users to be a receptive audience for legitimate but high-risk investment opportunities.
Fraudsters and promoters may solicit investors through forums and online sites frequented by members of the Bitcoin community.”
The SEC further warned that if such fraud does occur then it would be rather difficult for law enforcement authorities to track the criminals because it’s hard to trace bitcoin transactions, bitcoiners are located all over the world, there is no central bank and it’s hard for officials to freeze or seize bitcoin assets.
It also suggested to investors to consider the fact that bitcoins are not insured by the Federal Deposit Insurance Corporation (FDIC), maintains price volatility, lacks government regulations and there are a variety of security concerns.
This appears to be the very first official advisory in which it warns about unethical practices and the possibility of fraud rather than just listing the common risks with bitcoin.
Over the past several months, critics of bitcoin have been arguing that the cryptocurrency is a Ponzi scheme in itself. Gary North, an Austrian economist and publisher of Specific Answers, wrote in-depth regarding his viewpoints of the similarities between bitcoins and Ponzi schemes. He also wrote that bitcoin will never be the future of money.
