The US federal government may be ladling on more regulations to Bitcoin and making disparaging comments about the cyber-currency, but it’s one of the largest holders of the virtual money in the world.
The federal government has trashed Bitcoin by way of an investor alert from the Financial Industry Regulatory Authority (FINRA) entitled “Bitcoin: More than a Bit Risky.†FINRA said it issued the alert to caution investors that buying and using digital currency, such as Bitcoin, carries risks. Speculative trading in bitcoins carries significant risk. There is also the risk of fraud related to companies claiming to offer Bitcoin payment platforms and other Bitcoin-related products and services.
The financial watchdog warned investors that Bitcoin wasn’t legal tender and therefore, “If no one accepts bitcoins, bitcoins will become worthless.†Trading platforms can be hacked, and transactions can involve fraud or theft. Digital wallets don’t guarantee safety like FDIC-insured banks. Property actually transfers in a Bitcoin transaction, so refunds are at the discretion of the seller. Bitcoin has been used in illegal activity because of the anonymity it offers. And finally, speculation in the cyber-currency makes the price volatile.
Uncle Sam: Second Largest Bitcoin Holder
With all that, the government must figure Bitcoin is worthless, right? Well, no. Readers may remember an online marketplace called Silk Road that was seized by the US Marshals Service (USMS). Bitcoin was the coin of the Silk Road realm, and the US government went ahead and auctioned roughly $20 million of the cyber-currency seized from the online marketplace, despite the Silk Road entrepreneurs not yet having had their day in court.
Forty-five bidders registered to buy 29,656 bitcoins. Each ponied up a $200,000 deposit. Reportedly, 63 bids were received by the USMS, with the currency transferred to the winner after the 12-hour auction.
What’s curious is that a single anonymous bidder won the auction, beating out prominent investment firms, including Pantera Capital and SecondMarket. There was even speculation that the auction was a ruse and the government didn’t sell at all.
