The Dutch financial regulator has issued a new warning to investors about the risks linked to initial coin offerings (ICOs).
The Netherlands Authority for Financial Markets (AFM) released a statement this week detailing the risks that they present to investors, claiming they provide the ideal environment for scammers.
In a statement, Merel van Vroonhoven, chairwoman of the AFM, said:
“Although the AFM sees the possibilities of blockchain technology for financial services, it points to the high risks of ICOs in the current hype. The high risk of scams and loss of intake combined with the hype around ICOs at the moment is a dangerous cocktail.”
According to the AFM, ICOs are risky to investors for several reasons. These include overestimated returns while projects remain in the early stages of development; most private investors lack the specialist knowledge and expertise to make a considered investment decision; many people invest with a speculative goal; and ICO providers fail to disclose the value of the project, making it hard to distinguish between legitimate and fraudulent intentions.
Aside from the warning about the risk that ICOs present, the AFM has also warned investors about the risks associated with investing in digital currencies. In June, the financial regulator released a statement saying that the rising popularity in the crypto market along with its increasing prices were showing ‘similarities with a financial bubble.’
At the time, it said:
“With a bubble, prices may increase for a long time, but a small event, such as a negative news release, can suddenly split up. Realize that prices can unexpectedly and rapidly collapse.”
The likes of boxing champion Floyd Mayweather Jr., hotel heiress Paris Hilton, DJ rapper Khaled, football manager Harry Redknapp, and football player Luis Suarez have all endorsed ICOs ahead of their token sales.
Yet, according to the SEC:
“These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.”
The growth of ICOs has taken off over the last 18 months and is set to continue. According to financial research firm Autonomous Next, token sales have raised over $3 billion. However, despite warnings from several regulators, Coinschedule shows that there will be a further 100 ICOs launched between November and December.
Source : Coinjournal