September 13, 2017
The Financial Conduct Authority has warned investors: The “initial coin offering,” or ICO, comes with significant risk. The news is an official acknowledgement of the shaky ground that the ICO — which often functions like an IPO, sans security laws — has always tread. Here’s what ICO investors need to know.
The UK financial regulator’s warning statement, labelled “Consumer warning about the risks of Initial Coin Offerings,” was posted to their site over the weekend.
“ICOs are very high-risk, speculative investments,” it says in part.
“You should be conscious of the risks involved (highlighted below) and fully research the specific project if you are thinking about buying digital tokens. You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself (e.g. business plan, technology, people involved) and prepared to lose your entire stake.”
The statement from the financial regulator highlights the reasons leading to this warning: Since ICOs are a widely unregulated space, warning signs include a lack of investor protection, price volatility, potential for fraud, and inadequate documentation.
Boom or Bust?
It’s not the only PR problem ICOs are facing: A boom-and-bust cycle has been predicted for months, even if the bust has yet to materialize. Regulators across the globe are all coming down against ICOs.
“The FCA joins regulators in the U.S., China, Canada, Hong Kong, and beyond in cracking down on ICO activity in recent weeks. Last week the People’s Bank of China moved to ban ICOs in the country, sending cryptocurrencies plummeting,” Business Insider reports.
The booming ICO market — according to research firm Smith+Crown, all investments in ICOs total $250 million, and $107 million is from this year alone — may fall victim to the FCA’s warning. It may even be a self-fulfilling prophecy: Distrust in the ICO market makes it shakier, which then justifies the original distrust.
Read more about cryptocurrency at TechCo
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