Tuesday, February 25, 2014

Texas Securities Board warns of issues with Bitcoin

Austin, Tx. February 25, 2014 -- The Texas State Securities Board warns Texans against investing in digital currencies such as Bitcoin.

The board's press release carries concerns and warnings of fraud and security issues associated with digital currencies. Among those concerns is that such currencies are not backed as legal tender by any government. That means that nothing legally binds them as acceptable units of barter, trade or settlement of debts.

In addition, the TSSB warns that digital currencies may be compromised easier than "hard currencies" in events such as hacking. They cite one example of a Japanese firm, Mt. Gox, ceased operations on Feb.24, 2014, effectively eliminating 6 percent of Bitcoins on the market.

Texas Securities Commissioner John Morgan stated:

“Although digital currencies such as Bitcoin are often touted as a sophisticated, online alternative to traditional currencies, investors should realize these currencies are not tangible, they are not issued by a government, and are not currently subject to traditional regulation or monetary policy.”
For more information, citizens are encouraged to contact:

Joseph Rotunda, Director, Enforcement Division, 512-305-8392, jrotunda@ssb.state.tx.us
or Robert Elder, Communications, 512-305-8386 or relder@ssb.state.tx.us at the TSSB.

Below are key points from the TSSB press release:

Although Bitcoin and other digital currencies are becoming more popular, they present significant risks when part of a securities offering.  These risks include the following:
  • Questionable security of the exchanges dealing in Bitcoins and other digital currencies, highlighted by Mt. Gox, the Japan-based Bitcoin exchange that apparently ceased operations Feb. 24. A reported series of security breaches at Mt. Gox may have caused the loss of 6% of the Bitcoins of circulation.
  • Digital currencies exist only on computers and are almost always used as part of transactions that are effectuated through cyberspace. The electronic nature of digital currencies may provide fertile ground for hackers, who may be able to remotely compromise computer security systems and effectively steal digital currencies. Investors are therefore highly reliant upon their own computer security systems, as well as those provided by other parties, to protect investment programs tied to digital currencies.
  • Digital currencies may provide promoters with a significant degree of anonymity.  Unscrupulous promoters may be able to exploit the anonymous nature of certain digital currencies to conceal their true identity and assist in the concealment and laundering of the proceeds of a fraudulent investment offering. 
  • Securities offerings that incorporate digital currencies may be highly dependent upon their growth and acceptance in retail and commercial marketplaces.  Also, any change in consumer confidence, user demographic or governmental regulation, or the introduction of new and competing forms of digital currencies, may negatively affect the liquidity or value of such securities offerings.