Sunday 17 December 2017

UK watchdog issues warning on ICO cryptocurrency tokens

The Financial Conduct Authority has issued a consumer warning over the growing popularity of Initial Coin Offerings (ICOs).

Handout Photo of Bitcoins.
Handout Photo of Bitcoins.

By Kalyeena Makortoff, Press Association City Reporter

The UK’s financial watchdog has joined international peers in raising the alarm over initial coin offerings (ICOs).

A consumer warning issued by the Financial Conduct Authority (FCA) highlighted the risks involved with investing in companies in exchange for a digital “coin” or “token”, adding that most ICOs are not currently regulated.

ICOs are being used in most cases as digital fundraising tools, allowing investors to exchange cryptocurrencies like Bitcoin for proprietary coins or tokens linked to a specific firm or project.

They can act like a share in a firm, drawing parallels with an initial public offering (IPO) on a public exchange, a prepayment voucher for future services or in some cases “offer no discernable value at all”, the FCA warned.

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London skyline stock

“ICOs are very high-risk, speculative investments,” the UK watchdog explained.

“You should be conscious of the risks involved … and fully research the specific project if you are thinking about buying digital tokens.”

China went as far as to ban ICOs earlier this month in a move that cause the price of Bitcoin to slide.

Regulators in other countries including Canada and the US have issued their own notices to highlight the potential risks involved with ICOs, including the possibility that the projects are linked to illegal schemes or fraud.

“Some issuers might not have the intention to use the funds raised in the way set out when the project was marketed,” the FCA warned.

Watchdogs have also raised concerns over the lack of transparency and higher volatility in the price of the unregulated coins.

ICOs have grown in popularity and gained backing from celebrities including Paris Hilton.

The socialite and reality TV star tweeted earlier this month that she was set to take part in an ICO for Lydian Coin, which is set to combine blockchain technology with AI-driven digital marketing and advertising.

Professional boxer Floyd Mayweather has also stepped in to promote the ICO for Stox, a “prediction market platform” that will use use the “wisdom of the crowd” to predict and trade the outcome of financial, sporting and political events.

Press Association

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