By Julian Hattem - 03/12/14 09:00 AM EDT
A top financial industry regulator is cautioning investors about the risks of bitcoin.
In a notice published Tuesday, the Financial Industry Regulatory Authority (FINRA) said speculative trading in the virtual currency “carries significant risk,” including the possibility of falling victim to fraud.
Because bitcoin is not backed by any government, participation in the market is purely voluntary. That could render the money valueless, if the tides turn against it.
“If no one accepts bitcoins, bitcoins will become worthless,” FINRA said.
Bitcoin companies can also be hacked, hit with fraud and can dabble in illicit activity, the regulator noted. Because there is no deposit insurance for bitcoin, unlike money at a bank or credit union, investors’ money can be lost if the exchange goes bust.
Bitcoins are a type of money that only exists online, in the form of computer code. The currency can be exchanged for dollars or used to buy goods and services at some retailers.
Supporters of the money argue that it can revolutionize the way people pay for things, but backers have suffered a black eye by a series of scandals in recent weeks.
The Japan-based exchange Mt. Gox went bust earlier this year, taking hundreds of millions of dollars worth of people’s bitcoins with it. A top bitcoin backer was also charged with helping to launder money for people on the online drug market Silk Road, which federal authorities shut down last year.
Bitcoin’s exchange rate has also fluctuated wildly as the currency gained national attention. One bitcoin is worth about $630 in recent trading, but reached over $1,000 at its peak late last year.