Bitcoin and other cryptocurrencies have become popular investment products, but if you’re not familiar with the cryptocurrency market, you may wonder: is Bitcoin safe and legal? The answer to this question depends upon the circumstances and it’s not a straightforward question to answer. If you are considering making a substantial investment or have concerns about money you have already invested, reaching out to a Bitcoin law firm could be important.
Zamansky, LLC can provide insight into both the legality of Bitcoin and the potential pitfalls that you face as an investor. Contact our firm today to talk with a lawyer experienced in financial products and securities laws who can help you.
Is Bitcoin Safe and Legal?
Bitcoin is a cryptocurrency, the safety and legality of which depends upon your intentions for the virtual currency and your actions in trading it.
Within the United States, there are no laws against buying and selling bitcoins. However, the IRS requires that you declare your Bitcoins as property. If you do not comply with the rules, you could be subject to penalties for violating tax laws. Exchanges which sell Bitcoin are also covered by the Bank Secrecy Act, and Initial Coin Offerings, which are similar to IPOs, are also subject to regulation as a security.
While you can buy and sell bitcoins, however, you cannot do so for an unlawful purpose such as money laundering. Attempting to use bitcoin for unlawful purposes can result in prosecution and could leave you faced with serious penalties.
You should not assume that your Bitcoin transactions will be untraceable, as Coinbase has already been ordered to turn over information about certain transactions to the IRS. The confidentiality of your information is not guaranteed if there is a court order under any circumstances compelling any coin exchange or virtual wallet provider to turn over your account information.
If you operate in accordance with regulations and do not use your Bitcoin for illegal activities, you should not face legal consequences in connection with Bitcoins. However, you should be aware that just because an investment is legal does not mean it is safe.
Investors in cryptocurrencies have lost substantial sums of money as a result of hacks. The loss of your password for your virtual wallet or other inability to access your public and private key necessary to prove your ownership of bitcoin could also result in your investment being lost forever. And, if a coin exchange or virtual wallet disappears, is hacked, or is bankrupted, the FDIC does not insure your investments and you could lose everything.
All of these risks exist in addition to the fact that Bitcoin and other cryptocurrencies are simply a very volatile investment. The price has fluctuated greatly, and it is uncertain whether Bitcoin will become a widely-accepted currency in the long-term, resulting in coins being worth millions, or if it will eventually be worth nothing.
If you are considering investing in Bitcoin, you should talk with a Bitcoin law firm to find out how regulations do – and don’t – protect you and to ensure you understand your obligations so you can comply fully with the law.