By Judith Rinearson and Rizwan Qayyum
Echoing thoughts from the FCA recently, Germany’s Federal Financial Supervisory Authority (BaFin) issued a formal warning to investors and consumers in general to steer clear of ICOs on the grounds that they constitute “highly speculative investments” that contain “substantial risks”
BaFin notes: “Investors should be aware that a total loss of their investment is possible”, whilst further it added that the huge public interest in the tokens “also attracts fraudsters.” This is very reminiscent of language from the FCA earlier this year.
The risks include volatility in the price of the virtual currencies or tokens offered as part of ICOs, BaFin added. The secondary market for these currencies could be illiquid or even non-existent. A further problem is that the business models financed via ICOs are often at a “very early, mostly experimental stage” and are hard for investors to assess. The brochures are “often objectively insufficient, incomprehensible or even misleading.”
As if that weren’t enough, it warned that ICOs are “systemically vulnerable to fraud, money laundering and terrorism financing.”
Thus far, Germany has not necessarily been a hotbed for ICO, with only one formal ICO launched, and a few further announced, so it will be interesting to observe how such offerings, and the market in turn, will react to this release. It can be surmised that Germany is likely also to observe this industry going forward and under the technology involved before any regulatory oversight.