Bitcoin lacks 'credibility and trust,' U.S. SEC says

The U.S. Securities and Exchange Commission is leery of bitcoin.

The agency issued a lengthy warning to investors on Wednesday about risks it sees in bitcoin and virtual currencies, much of which has been already iterated by bitcoin advocates or other regulators.

But the SEC, which is the top regulator for U.S. securities markets, also took a dig at bitcoin’s short existence as another negative.

“As a recent invention, Bitcoin does not have an established track record of credibility and trust,” the agency wrote in its advisory.

The statement perhaps conflates the pure technology of the bitcoin protocol that transfers the virtual currency, which has been vetted by cryptography experts as solid, with the nearly innumerable thefts, scams and failures of bitcoin-related businesses.

Bitcoin, which launched in 2009, has seen a fair share of challenges, including vacillating exchange rates and regulatory restrictions in countries such as China.

To back up its claim of bitcoin’s track record, the SEC cited the February collapse of Mt. Gox, the Japan-based exchange that said it lost some 650,000 bitcoins and US$28 million in cash, confirming suspicions the exchange that once dominated bitcoin trading was in trouble.

Law enforcement and the SEC may also have trouble investigating bitcoin-related cases, the warning said, since banks are not involved with bitcoin transactions and there is no central authority to obtain information on users.

The SEC must rely on other sources for information in such cases, such as bitcoin exchanges or users. Seizing and freezing proceeds that are in bitcoin can also be difficult, the SEC said.

Of course, many of those supposed weaknesses are also what makes bitcoin attractive to certain kinds of users.