The Financial
Industry Regulatory Authority (FINRA) issued an investor alert titled
"Bitcoin: More than a Bit Risky," and said recent events such as the bankruptcy of Bitcoin exchange operator Mt. Gox
have spotlighted some of the currency's risks.
FINRA warned that Bitcoin can expose people
to significant losses, fraud and theft, and the lure of a potential quick
profit should not blind investors to the virtual currency's significant risks.
Launched
in 2009, Bitcoin offers a way for people to conduct transactions over the
Internet, with bitcoins that they can buy and sell online or in person.
Supporters say the anonymity that Bitcoin offers lowers the risk of fraud,
while critics say that same anonymity and lack of central oversight make it
easier to commit crimes.
The market for the
currency was rocked last month when Mt. Gox, once the world's largest bitcoin
exchange, ceased operations, and soon after filed for bankruptcy in Japan and
the United States. Mt. Gox said it may have lost 750,000 bitcoins, worth
hundreds of millions of dollars, in a hacking attack.
Federal Reserve Chair
Janet Yellen has said the Fed has no jurisdiction over bitcoins, but that
Congress should look into regulating virtual currencies. No clear plan has emerged.
FINRA, an
independent, industry-funded regulator for more than 4,100 securities firms
that employ about 632,000 brokers, reminded prospective bitcoin investors to
never speculate with money they cannot afford to lose and that platforms for
the currency can be hacked or fail.
It also said Bitcoin
has been used in drug dealing, money laundering and other crimes, and that law
enforcement actions could leave people unable to use or trade their bitcoins.
Bitcoin Foundation,
which advocates the use of the currency, agreed that investors should
understand the risks.
"We have been
saying all along that investors should not invest more in Bitcoin than they are
willing to lose," spokeswoman Jinyoung Englund said. "Bitcoin is a
five-year-old technology, and we are just starting to see responsible
entrepreneurs build reliable services for this ecosystem."