Susan Tompor: What's the value of bitcoin? Heading for $10
or $10,000?
March 20, 2014 | 12
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ILLUSTRATION: Bitcoin
300 dpi Phil Geib illustration related to Bitcoin payments.
(Chicago Tribune/MCT) / MCT
By Susan Tompor
Detroit Free Press Personal Finance Columnist
FILED UNDER
Commentary And Criticism
Susan Tompor
More information on bitcoin
■ The
SEC also has issued investor alerts relating to bitcoin. Go to www.sec.gov.
■ See
investor alerts at www.finra.org for “Bitcoin: More than a Bit Risky.” As
bitcoins are not legal tender, consumers need to realize that a retailer is not
required to accept bitcoin. The Financial Industry Regulatory Authority, an
independent, not-for-profit organization authorized by Congress to regulate the
securities industry, has noted: “Bitcoin use is limited to businesses and
individuals that are willing to accept bitcoins. If no one accepts bitcoins,
bitcoins will become worthless.”
■
Bitcoin payments are irreversible, according to the FINRA alert. “Purchases can
be refunded, but that depends solely on the willingness of the establishment to
do so,” the alert said.
Sources: Financial Industry Regulatory Authority and the
Securities and Exchange Commission
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The crypto-currency craze has had a quick-riches feel of
striking gold — or maybe even has the sound of getting in on the ground floor
of the next Google or Apple stock.
Honestly, who doesn’t look twice when you hear that the
value of the virtual currency bitcoin was just around $20 early last year but
shot up to more than $1,000 in early December?
Yet is bitcoin heading for $10 or $10,000?
Bitcoin is a digital currency, created in 2009, that can be
used to buy goods or services. Bitcoins exist only on the Internet but some
bricks-and-mortar restaurants and retailers now accept them.
And bitcoins are traded on various online exchanges for
other currencies.
Yet warnings are brewing that investors who make a bet on
bitcoin and other virtual-currency-related investments could be taking a big
gamble.
Consumer Reports Money Adviser’s April issue asked: “Is
bitcoin the next bubble?”
The Financial Industry Regulatory Authority (FINRA) is
cautioning investors that buying and using digital currency, such as bitcon,
carries plenty of speculative risk.
“The threat of bitcoin-related fraud is a real danger for
investors looking to make a quick profit from bitcoin,” according to FINRA.
While bitcoin trades like money, or another currency, it is
not legal tender.
Instead, the bitcoin platform is touted as a new currency
that’s free from government or central bank control.
The Internal Revenue Service has not been even clear yet on
how to treat bitcoin. Is it a collectible? Currency? Or something else? The IRS
continues to study virtual currencies and intends to provide some guidance on
tax consequences.
Some news should give potential investors more reason to be
cautious.
On Feb. 19, the Securities and Exchange Commission
temporarily suspended trading in the securities of Imogo Mobile Technologies,
which had announced testing of a new mobile platform for bitcoin a few weeks
earlier.
On Feb. 24, the Tokyo-based Mt. Gox, one of the largest
bitcoin exchanges, stopped its operations. It subsequently filed for bankruptcy
in Japan on Feb. 27 and in the U.S. on March 10.
Gerri Walsh, FINRA’s senior vice president for investor
education, said investors should understand that anytime there’s excitement
about a new product or idea investors can easily be swept away, along with
their cash, by all the emotion involved.
“Fraudsters may see the latest digital currency trend as a
chance to steal their money through old-fashioned fraud,” Walsh said.
In the summer, the SEC charged a Texas man and his company
with defrauding investors in a Ponzi scheme involving bitcoin.
FINRA’s Walsh said in an interview that regulators are
concerned that investors could be hurt if they speculate on the price changes
for bitcoin, too.
Regulators warned that platforms that buy and sell bitcoins
can be hacked, and some have failed. In addition, unlike U.S. banks and credit
unions that provide certain guarantees of safety to depositors, there are no
such safeguards provided to bitcoins residing in digital wallets.
Some anticipate that more U.S. regulation is on the way for
bitcoin, which could change the landscape and drive up costs.
No doubt, bitcoin prices have seen dramatic swings. After
skyrocketing above $1,000 for one bitcoin, the price dropped to around $565 in
early March. Volatility is the name of the game. Values can swing based on
activities of big players, as well as rumors of how some countries will regulate
bitcoin.
Virtual pocketbooks, aside, no one really knows how bitcoin
will play out. It is indeed a new game that bypasses the more sluggish,
traditional banking system.
Goldman Sachs analysts took on the bitcoin bling and
concluded the bitcoin is unlikely to work as a true currency. But some
“ledger-based technology,” the report stated, could hold promise.
Where will bitcoin end up?
“I wish we all had a crystal ball and could know,” Walsh
said. “But again, that is one of the risks.”
Contact Susan Tompor: 313-222-887
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