EU watchdog warns of ‘high risk’ of losing money in ICOs
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 Coinschedule.com, 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.