TALLAHASSEE, Fla. – The Florida Office of Financial Regulation (OFR) has issued a consumer warning about the potential risks associated with purchasing, investing and exchanging virtual currencies, such as bitcoin.
While homes generally don’t sell using the virtual money, a few Florida sellers have already expressed tentative interest in accepting the currency.
Members of the U.S. Congress, federal and state regulatory authorities continue to question a way forward with virtual money – the technology is so new that few rules exist. Mt. Gox, an international Bitcoin exchange, filed for bankruptcy that resulted in losses in excess of $400 million and put a spotlight on risks surrounding virtual currencies.
OFR’s alert says the following facts should be carefully considered when dealing with virtual currencies:
• No insurance guarantee. Funds held by U.S. banks and credit unions are insured; virtual currency is not.
• Unpredictability. The value of virtual currency can rise and fall in a short time, and the marketplace drives values. Those who deal in virtual currencies should realize the risk of a substantial loss.
• Security. Some virtual currency exchanges that store virtual currency in virtual wallets have failed to offer protection. Consumer lost money as a result of hacking.
• Links to criminal activity. Criminals have taken advantage of the anonymity provided by virtual currencies and used them for money laundering and other crimes. If an exchange is shut down, consumers may not be able to access their funds.
• Regulation. Oversight of virtual currencies has not been thoroughly developed, and thus, consumers lack many of the protections they have come to expect within the financial services industry.
• Potential tax obligations. The Internal Revenue Service (IRS) has not provided guidance on the tax implications concerning virtual currencies. The benefits of using virtual currencies may be compromised when the IRS determines the taxes due.
The Florida Office of Financial Regulation provides regulatory oversight for Florida’s financial services providers. For more information, .
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