EU banking watchdog issues warning over virtual currency trading

The EU banking watchdog yesterday issued a warning over virtual currency trading as the value of Bitcoin swung wildly through the week.

"The European Banking Authority (EBA) is issuing this warning to highlight the possible risks you may face when buying, holding or trading virtual currencies such as Bitcoin," a statement said.

The EBA added: "We recommend that, if you buy virtual currencies, you should be fully aware and understand their specific characteristics.''

Bitcoin has become a global phenomenon, and its price has risen so steeply in recent years, as to allow a Norwegian man to buy an apartment with some of the 5,000 Bitcoins he bought for just $24 in 2009.

The explosive growth has set off fears, as analysts warned of an impending crash resulting from lack of fundamental support.

The EBA urged users to "exercise the same caution with your digital wallet as you would do with your conventional wallet or purse."

The watchdog warned against keeping large amounts of money in their digital wallet for an extended period.

The warning comes as Chinese speculators saw Bitcoin values plunge, soar and plunge again within days.

The warning is only the second such notice the London-based authority has issued, and comes as central banks struggle to manage the rising demand for unregulated cyber currencies, which can see wild variations in their values. For instance, the value of one Bitcoin swung between $340 and $1,240 during last week.

While investors have readily embraced virtual currencies, authorities have been fretting as they point out that the phenomenon was promoting criminal activity through hacking attacks on online platforms and accounts, bribery, money laundering, or the purchase of illicit drugs or weapons.

According to the EU's supervisors, they wanted to highlight ''possible risks'' associated with the purchase, holding or trading of virtual currencies. Among these is the danger of their digital wallet on their computer or smartphone being hacked, the watchdog said.