CFPB warns consumers about bitcoin ‘Wild West’

The Consumer Financial Protection Bureau is warning the public that bitcoin and other virtual currencies are a risky “Wild West” in the financial markets.

The government watchdog announced Monday that it was now accepting complaints from consumers tied to virtual currencies, adding that the new and controversial way of making payments can come with “significant risks.”

{mosads}“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” said CFPB Director Richard Cordray. “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”

The new advisory marks the CFPB’s first foray into the world of virtual currencies, which has come under growing skepticism from the U.S. government after some high-profile scandals like the collapse of the major bitcoin exchange Mt. Gox.

In its warning to consumers, the CFPB emphasized that bitcoin and similar virtual currencies are not backed or insured by any government, and that users are taking on significant risks for themselves in shifting their funds to an online currency.

The CFPB also noted that bitcoin exchange rates have proven to be extremely volatile at times, noting that the bitcoin-to-dollar rate fell as much as 80 percent in one day in 2014. It also warned that virtual currencies are common targets for “highly sophisticated” hackers and scammers either trying to sell a fake virtual currency in exchange for real dollars or trying to gain access to a user’s “virtual wallet” to steal what virtual currency they have.

The CFPB underlined those concerns by emphasizing that if something goes wrong with bitcoin or any other virtual currency, there is no government safety net to come to the rescue. Furthermore, many online currencies remain largely anonymous, making it extremely difficult to address any problems that might emerge.

That being said, the CFPB has now broadened its consumer complaint system to take bitcoin complaints. Consumers who face an issue with a virtual currency can now tell the CFPB about it, and the agency will try to address the concern with the appropriate company, or forward on the concern to the regulator with appropriate jurisdiction.

The bureau’s new initiative came after the Government Accountability Office recommended in June that the CFPB make a more visible effort regarding bitcoin.