Watchdog warns of 'high risk' digital currency offers

November 13, 2017

Credit: CC0 Public Domain
A European financial markets watchdog warned Monday of the risks to investors of putting money in Initial Coin Offerings (ICOs), and to firms of stepping over the line of legality.

The Paris-based European Securities and Markets Authority (ESMA), an independent EU body, said it had observed "rapid growth" in ICOs and "is concerned that investors may be unaware of the high risks that they are taking when investing in ICOs".

Firms issuing ICOs, meanwhile, "may conduct their activities without complying with relevant applicable EU legislation", the body said.

In offerings of ICOs—a term borrowed from Initial Public Offerings (IPOs) on stock markets—a group of people creates its own and raises funds by selling it to investors.

These coins are then traded for traditional currencies, like the euro or the dollar, or other virtual currencies like bitcoin or ether.

The price of a new coin, also known as a "token", is "typically extremely volatile", the ESMA noted, and warned investors may not be able to redeem them "for a prolonged period".

If such operations fall outside of EU rules and regulations, investors also cannot benefit from legal protection if the investment goes sour, it said.

Fraud and money laundering were also a risk possibly involved in ICOs.

The warning comes as bitcoin, the best-known virtual , is experiencing a volatile trajectory.

Early Monday, bitcoin fell to $5,605, a drop of nearly 30 percent from its November 8 record high. By late morning, it had recovered somewhat to $6,425.

Analysts said traditional bitcoin is under pressure from rival "bitcoin cash", which was created this summer by a breakaway group of users.

Explore further: Bitcoin ... the way to the future or path to financial ruin?

Related Stories

Reports: China orders bitcoin exchanges to shut down

September 14, 2017

Regulators have ordered Chinese bitcoin exchanges to close, two business newspapers reported Thursday, after uncertainty about the digital currency's future in China caused its price to plunge.

Recommended for you

Permanent, wireless self-charging system using NIR band

October 8, 2018

As wearable devices are emerging, there are numerous studies on wireless charging systems. Here, a KAIST research team has developed a permanent, wireless self-charging platform for low-power wearable electronics by converting ...

Facebook launches AI video-calling device 'Portal'

October 8, 2018

Facebook on Monday launched a range of AI-powered video-calling devices, a strategic revolution for the social network giant which is aiming for a slice of the smart speaker market that is currently dominated by Amazon and ...

Artificial enzymes convert solar energy into hydrogen gas

October 4, 2018

In a new scientific article, researchers at Uppsala University describe how, using a completely new method, they have synthesised an artificial enzyme that functions in the metabolism of living cells. These enzymes can utilize ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.