State securities officials issue warning about Bitcoin, digital currencies

Posted May 23, 2014, at 3:02 p.m.
Last modified May 23, 2014, at 3:29 p.m.

GARDINER, Maine — The state’s watchdog agency to protect investors has issued a warning Friday about the risks of investing in digital currencies, such as Bitcoin, Ripple or Litecoin.

The warning from the Maine Office of Securities cautions that virtual currencies are subject to minimal regulation, are not insured by the Federal Deposit Insurance Corporation and protection of that currency can depend on the strength of a person’s computer security systems and those of third-party “e-wallet” service providers.

For investors, the state securities office warned that the value of the currencies tend to be volatile.

“The concept behind the currency is difficult to understand even for sophisticated financial experts,” said Securities Administrator Judith Shaw, in a statement. “Investors should be aware that investments incorporating virtual currency present very real risks.”

In a phone interview, Shaw said the state office has not had any reports of fraud or complaints about virtual currency in Maine.

“We’re watching it very closely to see if other state or federal regulators are going to actually regulate virtual currencies,” she said.

The warning follows the lead of states like California and New Mexico and the North American Securities Administrators Association, which drafted a model notice in April. The Maine securities office is a member of that association, which Shaw said identified increased investment options in virtual currency as a possible trend in a recent report.

The digital currency news website CoinDesk reported last month that California securities regulators have started to explore how digital currency businesses get licensed under state law as part of a broader study of digital currencies.

In addition to trading virtual currencies as commodities, the state office cautioned investors about exchange-traded funds, which are indexed against a basket of stocks or commodities, and derivatives tied to virtual currencies.

The warning references as a cause for concern the April bankruptcy filing of the Japan-based Bitcoin exchange Mt. Gox, which lost more than $350 million in virtual currency after hackers broke into the exchange.

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