EU watch­dog warns of ‘high risk’ of los­ing money in ICOs

The Daily Telegraph - Business - - Business - By Lucy Burton

THE EU mar­kets watch­dog has warned in­vestors rush­ing to join so-called ini­tial coin of­fer­ings (ICOs) that they are at a “high risk” of los­ing all of their money.

Sound­ing an alert af­ter four days of vi­o­lent swings in the value of dig­i­tal cur­rency bit­coin, the Euro­pean Se­cu­ri­ties and Mar­kets Au­thor­ity (ESMA) said dig­i­tal coins are ex­tremely vo­latile, with ICOs vul­ner­a­ble to money laun­der­ing and po­ten­tially fall­ing out­side the scope of EU laws and there­fore in­vestor pro­tec­tion.

For those rea­sons, the watch­dog said it was “alert­ing in­vestors of the high risk of los­ing all of their in­vested cap­i­tal as ICOs are very risky and highly spec­u­la­tive”.

A way of rais­ing funds from the pub­lic, ICOs have boomed in pop­u­lar­ity this year: more than $2bn (£1.5bn) was raised in the first nine months of the year ver­sus just $54m for the same pe­riod a year ago, ac­cord­ing to CB In­sights, with celebri­ties such as real­ity TV star Paris Hil­ton re­cently an­nounc­ing an in­vest­ment. To date, in­vestors have pumped more than $3.2bn into ICOs, ac­cord­ing to Coin­sched­, with Septem­ber by far the busiest month of the year. The craze has forced reg­u­la­tors to out­line the risks in­volved. The UK did so ear­lier this year.

ESMA, which has also is­sued a set of guide­lines for firms in­volved in ICOs to make sure they com­ply with the rel­e­vant laws such as rules around an­ti­money laun­der­ing, is the lat­est to weigh in to the fundrais­ing tech­nique.

Jor­dan Belfort, the Amer­i­can stock­bro­ker who spent 22 months in prison for fraud and was then im­mor­talised in the film The Wolf of Wall Street, said last month that ICOs are “far worse than any­thing I was ever do­ing”.

Ris­ing in­ter­est in ICOs has helped so-called dig­i­tal cur­ren­cies such as bit­coin to record highs in re­cent months. How­ever bit­coin crashed by more than a fifth – from a high of over $7,800 (£6,000) last Wed­nes­day to just over $5,500 on Sun­day – af­ter plans to al­ter the un­der­ly­ing tech­nol­ogy were aban­doned. It was up nearly 10pc at $6.134 yes­ter­day af­ter­noon.

Jamie Di­mon, JP Mor­gan boss, said in Septem­ber that he would fire any staff who were trad­ing bit­coin be­cause it is “stupid” and “will blow up” al­though crit­ics hit back by say­ing banks viewed the bit­coin rise as a threat.

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