Do not invest more money than you can afford to lose.
The Dubai Financial Services Authority (DFSA) has warned investors of the risks of cryptocurrencies and the initial coin offerings (ICOs) in particular.
In its statement the regulator explains that those ICOs are usually used for funding of a business plan proposition or company. For instance, some are seeking to develop a new digital platform, while others offer investments in properties usinesses and assets, with promises of certain benefits or monetary returns; others are backed by particular types of assets.
According to the DFSA, however, the complexity of those products and the underlying technology brings risks, which may not be easy to identify or understand. Furthermore, the risk increases with cross-border operations and the DFSA does not regulate this type of product offerings.
“Before engaging with any persons promoting such offerings in the DIFC, or making any financial contribution toward such offerings, the DFSA urges potential investors to exercise caution and undertake due diligence to understand the risks involved”, the regulator said.
The DFSA is by far neither the first, nor the last national regulator to warn of the risks of the rising number of ICOs.
In August the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) have also come out with a joint statement warning. More recently, UK’s Financial Conduct Authority (FCA) also published a notice alerting the investors of potential risks. Among them are once again the lack of regulation and investor protection, price volatility and potential for fraud.
The Russian megaregulator, the Bank of Russia, also warned against cryptocurrencies and ICO’s and said it will not license digital currency exchanges for the time being. “Given the high risks of circulation and use of crypto-currency, the Bank of Russia considers it premature to admit crypto-currencies, as well as any financial instruments nominated or associated with crypto-currencies, to circulation and use at organized trades and in clearing and settlement infrastructure on the territory of the Russian Federation for servicing transactions with crypto-currencies and derivative financial instruments on them”, the bank said.
At the same time China went even further and banned ICO fundraising. According to some reports, the government is also planning to shut down the operations of the local cryptocurrency exchanges.