The UK financial watchdog warned consumers on Tuesday over the “very high” risk of initial coin offerings, an increasingly popular fundraising mechanism that is an important source of demand for crypto currencies.
The Financial Conduct Authority said in a bulletin that ICOs are “very high-risk, speculative investments.” It added:
You should be conscious of the risks involved … 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 FCA’s move follows a decision by the People’s Bank of China that made the use of ICOs illegal, sparking ructions in several popular crypto currencies, including bitcoin.
ICOs can be used by companies to raise funds, as an alternative to the typical venture capital model. Start-ups issue coins that can be used in the future to buy its goods or services. Investors pay for the coins using crypto currency.
The FCA noted that “whether an ICO falls within the FCA’s regulatory boundaries or not can only be decided case by case.”
“Many ICOs will fall outside the regulated space. However, depending on how they are structured, some ICOs may involve regulated investments and firms involved in an ICO may be conducting regulated activities,” the regulator said.
Bitcoin traders appeared to be unperturbed by Tuesday’s warning. The currency was recently up 2.9 per cent at $4,311.80 to the dollar, according to data provider Coindesk.
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