Minnesota’s commerce commissioner has warned consumers in his state to be wary of bitcoin despite no reported bitcoin-related problems, according to Minneapolis The Star Tribune. The warning marks the third U.S. state regulator in a month to issue such a warning.
Mike Rothman, the Minnesota commissioner, acknowledged that legitimate businesses are using bitcoin and developing legitimate uses for it to buy and sell goods. He also says there are no reports in Minnesota of consumers being scammed with bitcoin. He nonetheless warns there is a dark side to bitcoin and since it’s not backed by a government or a bank, there is no recourse for someone losing their funds.
Rothman said bitcoin is in its infancy and has to prove itself.
A notice on the department’s website urges Minnesotans to “proceed with caution” and understand the risks of any transaction or investment involving a virtual currency.
The notice lists the following virtual currency risks:
• It is subject to minimal regulation and susceptible to cyberattacks for which there may be no recourse should the currency disappear.
• Accounts are not protected by the Federal Deposit Insurance Corp. (FDIC).
• Investments may not be suitable for most investors due to volatility.
• Investors will be doing business with unregulated businesses that could be more susceptible to theft and fraud than regulated financial businesses.
• Some virtual currency exchanges have been used for illegal activity like money laundering and drug dealing. Should law enforcement close or restrict an exchange, it will impact other investors and consumers.
• Despite its name, the IRS considers virtual currency a form of property and it is required to be reported as such on federal taxes.
The notice explains that virtual currency can be used the same way as gold and other commodities as an investment. It also notes that virtual currency can be used in exchange trade funds (EFTs) and financial derivatives.
Virtual currency investments can be risky and highly speculative, the notice states, since values frequently fluctuate dramatically.
The notice also warns investors to be wary of unsolicited bitcoin sales pitches or “guaranteed” profit promises.
The anonymity of virtual currencies has allowed some nefarious activities such as money laundering and drug activities, Rothman said.
While the state commerce department has received no reports of investors being scammed, Rothman still advises caution.
He said he assumes there are people in Minnesota who are savvy with the Internet and are potentially part of bitcoin transactions.
Rothman noted that his department has tracked bitcoin’s activity for several years and has paid attention to how federal regulators are treating it.
While virtual currency supporters laud its lack of regulation and its decentralization, those same attributes carry enormous risks, Rothman said. In addition to being susceptible to cyberattacks and other losses that can’t be recovered, he said virtual currency does not have any recourse.
With savings and other investments, should a consumer be harmed, those investments are “backed by the FDIC of the good faith and credit of banks,” he said. With bitcoin, an investor is dealing with a totally private marketplace.
Minnesota’s warning about bitcoin marks the third such warning issued by a U.S. state regulatory agency in the past month. CCN reported warnings issued in November by Washington and Colorado state officials.
Unlike the warnings issued by Washington and Colorado state officials, the Minnesota commissioner claims to have been tracking bitcoin activity in his state for several years. The Colorado and Washington officials, on the other hand, issued warnings based on a national securities administration association posting about binary options and marijuana in addition to bitcoin.
Minnesota consumers with questions about virtual currency are encouraged to call the commerce department at 800-657-3602.
Images from Shutterstock.
Last modified (UTC): December 14, 2015 12:57