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SEC Warns Bitcoin’s Hype May Put Investors At Risk

| Published on May 7, 2014 at 18:00 BST

The US Securities and Exchange Commission (SEC) has released a new alert, warning investors about the risk of fraud in the digital currency industry.

In its latest guidance, the SEC, a federal organisation tasked with enforcing US securities law, advised investors to be wary of promises of large returns on investments in bitcoin ventures and schemes:

“A new product, technology, or innovation – such as bitcoin – has the potential to give rise both to frauds and high-risk investment opportunities.”

Lack of controls, oversight

According to the SEC, there are several warnings signs that investors should watch out for when considering investments in bitcoin ventures.

Specifically, it noted that investors should be wary of investment offers that come from unlicensed or unsolicited sources. Sales pitches that seem overly aggressive or that guarantee high returns, the release said, should be warning signs for every investor.

The SEC indicated that investors who generated significant earnings during bitcoin’s price boom in 2013 are particularly at risk of investment fraud. Additionally, participants in bitcoin forums like Bitcoin Talk face the risk of getting involved with fraudulent investments, such as an initial public offering (IPO) scheme.

The organisation also noted in the alert that the hype surrounding bitcoin may make it harder for investors to determine whether a particular investment opportunity is fraudulent:

“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.”

Continued SEC scrutiny

The investor alert mirrors a report issued last year by the SEC, which explained the risk of Ponzi schemes involving digital currency. At the time, the SEC expressed concern that the rise in digital currency would lead to greater risks for investors because of a lack of regulatory guidance.

In recent months, the SEC has begun looking into potential fraud in the bitcoin marketplace as well.

The organization is reportedly investigating bitcoin websites. In March, the SEC began looking into the bitcoin securities exchange MPex and the gambling website SatoshiDice.

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