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An investor advisory has been issued by the Indiana Secretary of State's Office cautioning investors to consider the risks associated with virtual currencies. Secretary Connie Lawson says these virtual currencies are highly volatile, are not backed by tangible assets, are not issued by a governmental authority and are subject to little or no regulation.
Virtual currency, which includes digital and crypto-currency are gaining in both popularity and controversy. Growing numbers of merchants, businesses and other organizations currently accept Bitcoin, one example of crypto-currency, in lieu of traditional currency. Last week, the U.S. Federal Election Committee said that Bitcoin could be used for donations to political action committees.
Recently, one of the largest Bitcoin exchanges, MtGox, shut down after claiming to be the victim of hackers and losing more than $350 million of virtual currency. Despite the controversy, virtual currency may find its way into your e-Wallet.
“Investors should be aware that investments that incorporate virtual currency present very real risks,” said Indiana Securities Commissioner Carol Mihalik. “It pays to do your homework before you invest in any investment opportunity including virtual currency,”
Some common concerns investors should consider before investing in any offering containing virtual currency include:
·Â Â Â Â Â Â Â Â Virtual currency is subject to minimal regulation, susceptible to cyber-attacks and there may be no recourse should the virtual currency disappear.
·Â Â Â Â Â Â Â Â Virtual currency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.
·Â Â Â Â Â Â Â Â Investments tied to virtual currency may be unsuitable for most investors due to their volatility.
·Â Â Â Â Â Â Â Â Investors in virtual currency will be highly reliant upon unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.
·Â Â Â Â Â Â Â Â Investors will have to rely upon the strength of their own computer security systems as well as security systems provided by third parties to protect their e-Wallets from theft.
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