Bitcoin prices fell by some 4% Thursday after U.S. Securities and Exchange Commission Chairman Jay Clayton warned investors to approach cryptocurrency markets with caution and said his agency was pursing some market participants for violating federal securities law.

"It is clear that many ... participating in the cryptocurrency-related investment markets are not following [secutities] laws," Clayton said in a statement posted on the agency's Web site. "The SEC and state securities regulators are pursuing violations, but [we] caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment."

Clayton added that while cryptocurrencies are "touted as replacements for traditional currencies, [they] lack many important characteristics of traditional currencies, including sovereign backing and responsibility, and now are being promoted more as investment opportunities than efficient mediums for exchange."

Following Clayton's remarks, bitcoin was trading some 4% lower at $14,538 on the bitsmap exchange in Luxembourg, which feeds prices into the CBOE bitcoin futures contract.

The SEC chief's criticisms echo views expressed late last month by European Central Bank Executive Board member Yves Mersch, who told Germany's Borsen-Zeitung newspaper that the current cyrptocurrency craze could present risk to broader global financial stability. 

"Of course, individual investors are free to gamble," Mersch told the financial daily. "However, if something goes wrong, they should not come to us and say we should have outlawed it and protected them from themselves."

The ECB member also warned of other cryptocurrency risks, saying:

  • "There are now banks which hold positions in bitcoin. It is a matter for the supervisors to judge how big the risks are."
  • "What concerns me most is when financial market infrastructures such as stock exchanges enter this business. That poses a major threat to financial stability."

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