Since the start of 2017, the price of Bitcoin has soared higher by an astounding 349 percent, from $968.23 to $4,336.44 at the time of this writing. Bitcoin has remained in the headlines, and more consumers have invested in the asset class. And, virtual currency as a whole has grown in popularity with new investment vehicles, platforms, and alternatives to Bitcoin.
In August 2014, the Consumer Financial Protection Bureau (CFPB) issued a consumer advisory warning about the risks of virtual currencies, including Bitcoin. “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. He continued, “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.”
In January of this year, we analyzed the public CFPB Complaint Database collection of over 689,000 complaints sent to almost 3,000 different companies. Our goal was to determine if consumers were complaining about virtual currency and Bitcoin to the CFPB in a meaningful way.
In 2016, we found that there were seven complaints tagged as Virtual currency. In short, in 2016 virtual currency represented less than 0.01 percent of the total proportion of complaints received and displayed in the CFPB Consumer Complaint Database.
We thought it would be interesting to rerun the analysis as more consumers have familiarized themselves with Bitcoin and virtual currency. On August 26th, 2017 we pulled the CFPB Consumer Complaint Database and found 145,948 complaints from 2,731 different companies.
So far in 2017, we identified 277 complaints labeled under Virtual currency. For reference, the CFPB breaks out Virtual currency complaints on a primary product level, and as a sub-product under Money transfer.
In 2017, Virtual currency transactions account for 0.0019 percent of the total complaints received by the CFPB. The CFPB is on pace to receive 425 complaints in 2017, up 5,971 percent from the seven complaints received in 2016. However, it should be noted that some complaints related to Virtual currency may not be receiving the appropriate tagging within the database.
For example, Coinbase, the leading Bitcoin wallet in the U.S., has historically received complaints related to Virtual currency transactions but tagged in different primary Product categories (ex. Bank account or service).
Coinbase received a total of six complaints in 2016. In 2017, there have been 288 complaints against Coinbase. Coinbase is on track to receive 442 complaints in 2017, up 7,288 percent from 2016.
We asked Tyson Cross, an attorney with Cross Law and a specialist in Bitcoin tax law and anti-money laundering compliance, about the rise in complaints. “As a whole, the industry is growing and more consumers are creating accounts. At Coinbase, the userbase is growing very rapidly. However, as the industry has grown so to have the restrictions placed on companies like Coinbase by regulators. Regulators have forced exchanges, like Coinbase, to place tight restrictions and limits on users due to anti-money laundering concerns. Coinbase, and other exchanges, now require an in-depth verification process to withdrawal money,” said Cross. Cross went on to say that he believes the increase in complaints against exchanges is caused by the increasingly strict verification processes.
For reference, we are not criticizing the CFPB in any way. In our view, the CFPB acted correctly by issuing its warning and coverage.
We pulled the CFPB’s Consumer Complaint Database on August 26th, 2017. The data includes all complaints made to the CFPB from January 1st, 2017 to August 26th, 2017. In total, we analyzed 145,949 CFPB complaints.
For reference, the CFPB does not verify all the facts alleged in the complaint data. Complaint categories included Bank account/service, Credit card, Credit reporting, Debt collection, Money transfer/virtual currency, Mortgage, Payday loan, Prepaid card, Student loan, Vehicle / consumer loan, and Other financial service.