CFPB warning: Bitcoin a 'Wild West' for investors

CFPB warning: The Consumer Financial Protection Bureau announced Monday that it will begin fielding complaints from bitcoin users. CFPB also issued an advisory warning about the risks of bitcoin use.

|
Bogdan Cristel/Reuters/File
George Rotariu uses Romania's first bitcoin ATM in downtown Bucharest June 27. The Consumer Financial Protection Bureau announced Monday that it will fielding complaints from bitcoin users.

Federal regulators are warning consumers about the risks of using virtual currencies such as Bitcoin.

The Consumer Financial Protection Bureau said Monday that it will begin fielding complaints from people who rely on products such as bitcoin and online exchanges for such currencies.

In issuing an advisory warning, the agency noted that the currencies are not backed by the government, have volatile exchanges rates and are targeted by hackers and scammers. And unlike bank accounts, bitcoin-based deposits are not federally insured.

"Consumers are stepping into the Wild West," CFPB Director Richard Cordray said in a statement.

Still, Cordray acknowledged that virtual currencies "may have potential benefits," noting that they facilitate online transactions by making it easier to process payments.

The Securities and Exchange Commission previously issued an investor alert about Ponzi schemes involving virtual currencies.

Advocates for virtual currencies said they thought the CFPB's characterization of the currencies was generally fair.

Jim Harper, global policy counsel for the bitcoin Foundation, called the CFPB's warning "pretty standard." He noted that it's "helpful to the extent that it informs consumers without scaring them."

"There are consumer risks around new technologies, and even-keeled educational material from government agencies can help make consumers aware and savvy," Harper said.

The CFPB's warning noted that bitcoin prices can be highly volatile. In one day last year, it said, prices dropped as much as 61 percent.

But Harper said such volatility should wane in the next 10 to 15 years if virtual currencies become more common.

In mid-July, the New York Department of Financial Services became the first state to begin the process of regulating the online currency. The agency is accepting public comments from July 23 to September 6. Then, after making necessary changes, the regulations will be put in place.

“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation," Mr. Lawky said. "Setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”

In March, the Internal Revenue Service said it does not consider bitcoin to be a currency. Instead, it will tax bitcoins as property.

"In some environments, virtual currency operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction," the IRS briefing read.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to CFPB warning: Bitcoin a 'Wild West' for investors
Read this article in
https://www.csmonitor.com/Business/Latest-News-Wires/2014/0811/CFPB-warning-Bitcoin-a-Wild-West-for-investors
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe