The SEC Says Be Wary of Bitcoin

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Bitcoin has been the Dutch Tulips of investment for a few years. So of course that means the fraudsters have latched on. The Securities and Exchange Commission has piled on and issued an Investor Alert: Bitcoin and Other Virtual Currency-Related Investments.

This is the second investor alert from the SEC on Bitcoin. The first was part of an enforcement action against an alleged Ponzi scheme.

It’s not that Bitcoin is inherently illegal. It actually has an interesting approach on funds transfers. Transfers are free of transaction costs. That’s in sharp contrast to the swipe fees charged by Visa, Mastercard, and the other credit card companies.

One of the current problems with bitcoin is that the value has fluctuating wildly. That’s not what you want in a currency. You want to know that a gallon of gas costs about $4 today and will be about $4 next month. You don’t want the uncertainty that it could be $2 of $8 next month. That turns bitcoin from a currency into an investment.

The IRS recently issued guidance that it will treat Bitcoin and other virtual currencies as property for federal tax purposes. As a result, general tax principles that apply to property transactions apply to transactions using bitcoin.

Bitcoin fraud schemes look like other fraud schemes. The fraudsters use the lure of high returns in a lightly regulated asset. The growth chart of value in Bitcoin is an irresistible lure. Don’t forget to look for the red flags like “guaranteed returns” and “no risk” opportunities. If it sounds too good to be true, it probably is not true.

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Author: Doug Cornelius

You can find out more about Doug on the About Doug page

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