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Securities News Releases
Thursday, April 24, 2014
Contact: Kevin Flannery, (573) 526-0949
INVESTOR ALERT: Kander Cautions Missouri Investors on Bitcoin
Jefferson City, Mo. — Secretary of State Jason Kander today issued an Investor Alert to caution Missourians about buying or trading digital currency such as Bitcoin. Investments in Internet-based financial products that may not yet be fully vetted or understood can carry significant risk.
"With digital currency or any other emerging investment opportunity, the safest approach is to be cautious," Kander said. "It’s important to recognize that in many cases not even the supposed Bitcoin and digital currency experts know enough about the product to help you make a fully informed investment decision. It’s best to rely on only the most reputable sources of information and do your own due diligence before investing in potentially risky products."
Bitcoin is a payment system that allows individuals to purchase products over the Internet with digital currency known as Bitcoins. Bitcoins are obtained through a process known as "mining" in which prospective users solve complex math problems online to obtain the coins. Users who do not want to solve the math problems may purchase Bitcoins from other users online with cash, credit cards or money orders. In most cases, the names of Bitcoin users remain anonymous.
Bitcoins are not issued by banks or the government, and various federal regulators are still assessing how to approach the digital product. The IRS, though, considers Bitcoins to be property rather than currency. Thus, selling Bitcoins at a profit could require the seller to pay capital gains taxes.
Additionally, only certain businesses accept Bitcoins as a form of payment. Those that do are under no obligation to continue doing so and could decide to refuse Bitcoins at any time—potentially upending investors’ plans and driving down the coins’ overall value.
"Investments that are sold as a way to make a quick profit can also lead to a quick loss," Kander said. "I encourage Missourians to be wary of any investments that promise an unusually quick return."
People have been drawn to Bitcoin trading as a way to make a quick profit. But with digital currency, profits or losses are virtually impossible to predict. Bitcoin prices have fluctuated widely and wildly, almost from the currency's inception.
Beyond investment concerns, other risks associated with Bitcoin have to do with the way the coins switch hands. They include the possibility of users getting hacked or falling victim to a fake Bitcoin exchange. The risks are especially pronounced because Bitcoin payments are irreversible. Once a transaction is completed, it cannot be undone. Users can—and have—lost substantial amounts of real money.
Before making any investment decision, Missourians are encouraged to contact Kander’s office at 1-800-721-7996 or www.MissouriSafeSavings.com and request information on the person or product they are considering investing with.
Visit www.sos.mo.gov to learn more about the Office of the Missouri Secretary of State.