Dutch financial regulators warned investors this week that initial coin offerings create conditions ripe for fraud. The Netherlands Authority for Financial Markets released its warning as the ICO mark
Dutch financial regulators warned investors this week that initial coin offerings create conditions ripe for fraud. The Netherlands Authority for Financial Markets released its warning as the ICO market continues to expand.
"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," Merel van Vroonhoven, the AFM's chairwoman, said.
The regulator identified several reasons why ICOs pose problems. Projects in early development stages forecast inflated returns. Most individual investors lack the specialized knowledge to evaluate a token sale. Many invest in them seeking quick returns. And ICO teams withhold information about their project's actual value, making it difficult for investors to distinguish between legitimate ventures and scams.
The AFM had warned in June about the broader cryptocurrency market. At that time, officials said rising prices and surging investor interest resembled conditions in a financial bubble. "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 regulator said.
The SEC issued a separate warning this month about celebrity endorsements of ICOs. Boxer Floyd Mayweather Jr., hotel heiress Paris Hilton, DJ Khaled, football manager Harry Redknapp, and footballer Luis Suarez have all backed such ventures. The regulator said: "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."
Autonomous Next reported that ICO investors have committed over $3 billion to token sales in the past 18 months. Coinschedule expects another 100 ICOs will launch between November and December.
In July, Charles Hoskinson, an Ethereum co-founder, warned about the trend. He cited an "over-tokenisation of things" and noted that "people are blinded by fast and easy money" through ICOs.
