FINRA calls Bitcoin "More than a bit risky"

Home » FINRA calls Bitcoin "More than a bit risky"
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The Financial Industry Regulatory Authority (FINRA) issued a “Fraud and Scam” alert about Bitcoin today, noting the “very real abuses and criminal activity associated with it.”

Such a claim is interesting coming from FINRA, the privately owned, non-governmental organization charged with the self-regulation of member brokerage firms and exchange markets. FINRA has no authority over non-member exchanges or organizations, meaning that most Bitcoin trading platforms are completely out of its already limited regulatory powers. In this capacity, the FINRA warning carries little threat of looming regulation, as the organization can neither create such regulation or enforce it. Both of these tasks, on the investment level at least, are the domain of the Securities and Exchange Commission (SEC), and it’s currently unclear if trading in virtual currencies would actually fall under SEC jurisdiction.

So what, exactly, is FINRA warning against? Speculation, it appears.

FINRA is issuing this alert to caution investors that buying and using digital currency such as Bitcoin carry risks. Speculative trading in bitcoins carries significant risk. There is also the risk of fraud related to companies claiming to offer Bitcoin payment platforms and other Bitcoin-related products and services.

Most of FINRA’s specific warnings will not surprise any long-time Bitcoin investor. The statement notes that:

  • Bitcoin is not legal tender, and therefore no business is required to accept it
  • Online platforms can be hacked, and some, like Mt.Gox, have been to the total loss of investor funds
  • As a new technology, the potential for fraud is significant
  • There are no banking-industry protections for funds
  • Payments in Bitcoin are irreversible
  • Drug dealers and money launderers have been known to use Bitcoin, making exchanges possible targets for law-enforcement seizures

The FINRA warning follows template of many government and central bank statements of recent months, but given the audience that FINRA’s statements are aimed at, it’s clear that Bitcoin has started to filter its way into mainstream investment.

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