Mo. secretary of state cautions investors on bitcoin

Secretary of State Jason Kander issued an investor alert on April 24 to caution Missourians about buying or trading digital currency, such as bitcoin. Kander said in a news release investments in Internet-based financial products can carry significant risk.

“With digital currency or any other emerging investment opportunity, the safest approach is to be cautious,” Kander said in the release. “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.”

The IRS recently ruled the bitcoin payment system is property, and not currency.

According to the Associated Press, bitcoin is “a digital currency created and exchanged independent of banks or governments. The currency can be converted into cash when deposited into accounts at prices set in online trading.” The IRS ruling makes spending the virtual currency difficult because users have to track every purchase and then calculate how much the value of the bitcoins changed from the time they were initially acquired to the time they were spent, the release said.

Bitcoins are earned through a process known as “mining” in which prospective users solve complex math problems online to obtain the coins, according to the release. Those who do not want to solve the math problems may buy bitcoins from other users online with cash, credit cards or money orders though their value changes day-to-day.

Kander said businesses that accept bitcoins are under no obligation to continue to do so, which could upend investors’ plans and drive down the coins’ value. Beyond investment concerns, he said other risks associated with bitcoin include the possibility of users getting hacked or falling victim to a fake bitcoin exchange. The risks are notable because bitcoin payments are irreversible.

Since the sudden rise of bitcoin in 2013, several first-generation bitcoin exchanges have run into trouble. In February, the one-time premier bitcoin exchange, called Mt. Gox, collapsed after nearly a half-billion dollars reportedly went missing from the exchange’s vaults. Mt. Gox officials cited hacker activity.

“Investments that are sold as a way to make a quick profit can also lead to a quick loss,” Kander said in the release. “I encourage Missourians to be wary of any investments that promise an unusually quick return.”