This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

CFPB to Consumers: Don't Rush to Bite on Bitcoin

NEW YORK (TheStreet) — Bitcoin, the digital currency created back in 2009 to eliminate middlemen such as banks from currency transactions, is increasingly on the radar screen of economists, Wall Street and consumers.

All that attention has attracted the Consumer Financial Protection Board, out with a warning this week about Bitcoin and other digital currencies.

Bitcoin is a problem for the government. It’s largely unregulated, offers no or low usage fees and is operated by a decentralized authority that is difficult to monitor by federal regulators accustomed to working with government-sponsored currencies such as the U.S. dollar or British sterling. The currency operates as an asset number that appears on a ledger powered by a massive computer network.

But Bitcoin’s popularity is soaring. Backers note that a digital currency may have particular appeal to the underbanked and unbanked demographic, and the currency’s value stands at around $509, compared with just $13 at the start of 2013.

Read More: 3 Investment Essentials to Keep in Mind as Stocks Get Shaky Again

That’s one reason the CFPB is warning about virtual currencies, and consumers would do well to listen.

“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” says Richard Cordray, CFPB’s director. “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”

Specifically, the agency is warning consumers to watch out for “unclear costs, volatile exchange rates, the threat of hacking and scams,” along with the possibility of consumers having funds stolen by unscrupulous market operators. It’s also pointing to potentially shady firms surrounding the Bitcoin market, including some virtual currency exchanges and digital wallet providers who store Bitcoin assets for customers.

Read More: Young Americans Prefer Bank Investments, Not Stock Market

Federal officials also warn consumers that Bitcoin accounts are not backed by the U.S. Federal Deposit Insurance Corp. or the National Credit Union Share Insurance Fund.

Consequently, if a Bitcoin consumer loses money (which the CFPB says happens “all the time”) it won’t be covered by the loss by Uncle Sam.

There is instability in the Bitcoin market,. Values have been to known to drop at alarming rates on short notice (the digital currency fell by 80% on a single day earlier this year), and consumers need to know that.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%
TSLA $206.79 0.00%
YHOO $44.45 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs