How risky are cryptocurrency ICOs? The FCA finally weighs in

Investors have been warned about the risks of buying into cryptocurrency ICO’s u

The Financial Conduct Authority (FCA) has issued a warning about so-called ‘ICOs’ (Initial Coin Offerings), which refers to a digital way of raising funds from the public where cryptocurrency is exchanged for a ‘coin’ or ‘token’ related to a specific firm or project.

ICOs vary widely but often these digital coins or tokens may represent a share in a firm or a prepayment voucher.

However, according to the regulator, the value of these ‘tokens’, like crypto currencies in general, can be 'extremely volatile and vulnerable to dramatic changes' and in some cases, have no discernible value at all.

As such, the FCA warns that these are “very high-risk, speculative investments” and as most ICO’s aren’t regulated, there’s no protection from the Financial Services Compensation Scheme or the Financial Ombudsman Service if something goes wrong.

Because these are early stage projects there is also a good chance you’ll lose your entire crypto currency stake, says the FCA.

Fraudsters may also be taking advantage of the situation to gain money from unsuspecting victims.

Protect yourself from ICOs

The FCA says you should fully research the specific project if you are thinking about buying digital tokens.

It adds that you should only invest in an ICO if you are an experienced investor, confident in the quality of the ICO project itself such as the business plan, technology, and people involved, and you’re prepared to lose your entire stake.

Keep up to date with all the latest personal finance news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.


Subscribe to Money Observer magazine

 

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
By submitting this form, you accept the Mollom privacy policy.