In early March of 2017, the value of one Bitcoin surpassed the value of one ounce of gold for the first time. Proponents saw this development as validation of the digital currency’s endurance; but other, more baleful watchers saw instead an opportunity to create new scams and defraud unwary investors. Why is Bitcoin so exciting to investors, and why is the medium also so rife with fraud?
While the US dollar has not been tied to the gold standard in decades, there is still a common belief that the US dollar is tied to some real-world commodity. But that connection is vague at best. There is an equation tying the value of a dollar to the gross domestic product of the nation, but even that does not clearly link to any tangible object of value. What Bitcoin offers is similar to the benefits of a gold-based currency: a valuable commodity, internationally valued, and with limited scarcity, without the drawbacks of trying to actually pay for goods with bits of shiny metal. Bitcoins also allow users to have a digital form of currency that is not tracked by any government institutions, or linked to a credit or bank account.
A Bitcoin is now worth more than an ounce of gold, but cashing in may be risky
For all the assets of Bitcoin as a currency, there are still drawbacks. While many vendors purport to accept them, what is really happening is that the Bitcoin is valued and translated, digitally, into dollars and cents. While there are concrete Bitcoins available at the 1,169 Bitcoin vending machines, there are only a few storefronts currently accepting them. Because Bitcoins are “off the grid,” trying to get restitution or repayment may be an extra challenge in cases of investing misconduct.
Because the valuation of Bitcoin is done via yet another arcane equation, current increases in value might be misleading about future value. The volatility of the currency is portrayed as an opportunity for wealth creation, but can just as easily lead to devaluation and losses.
Online Bitcoin scams have already popped up, particularly via social media, offering either free Bitcoins with downloads of malware-ridden software or Bitcoin digital wallets, which come with malware or are otherwise the antithesis of secure. Even services claiming to translate Bitcoins into traditional currency can be hijacked for malicious purposes. In regards to investing, the SEC has already documented Bitcoin pyramid frauds, Bitcoin Ponzi schemes, and more.
Bitcoins remain a complex and risky investment that only the most experienced investors should consider, and then only with the assistance of a knowledgeable and licensed investment professional.
No investment is risk-free, but working with a reputable broker can help you determine what level of risk you are comfortable with. The Frankowski Firm has the experience to represent investors who have lost money as the result of Bitcoin fraud. If you or someone you know has lost money through a Bitcoin investment scam, please contact The Frankowski Firm at 888-741-7503 to discuss your options for legal remedies, or complete our contact form.