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Germany’s BaFin warns of risks of ICOs

Germany’s financial markets and services regulator BaFin became the latest national regulator to warn of the risks of the initial coin offerings (ICOs).


In an official statement BaFin describes the ICOs as a “highly speculative form of investment” that may result in losing one’s investment completely. “As is the case with most new trends, the high level of public interest in ICOs is also attracting fraudsters”, BaFin notes.


Furthermore, the term "initial coin offering" is rather similar to the term "initial public offering" (IPO), which is a strictly regulated and closely scrutinized flotation on a stock exchange, and can confuse and mislead potential investors. Another risk outlined by the German regulator is the significant price fluctuations of the coins, the eventual lack of liquid secondary market or no secondary market at all where the investor can sell the tokens acquired in order to liquidate the investment at a profit.


Furthermore, BaFin says, the information stated by providers is often insufficient: in contrast to regulated prospectuses (as in IPOs), the documentation provided by the white papers and terms and conditions is often objectively insufficient, incomprehensible or even misleading. “Due to the lack of legal requirements and transparency rules, the consumer is left on their own when it comes to verifying the identity, reputability and credit standing of the token provider and understanding and assessing the investment on offer. It can also not be guaranteed that personal data will be protected in accordance with German standards”, the regulator said.


Usually, BaFin notes, the projects launching an ICO are at a very early stage and in many cases experimental and face the risk of failing and investor can remain with a handful of completely useless and worthless tokens. The danger of inadvertently funding terrorism or money laundering schemes should not be ignored either, as this may result in authorities seizing the funds of such undertakings.


BaFin is the latest national regulator to warn of the numerous risks of ICOs. Recently New Zealand’s FMA also came out with a similar statement, noting that such coin offerings should be regulated.


Earlier this year the  Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) have come out with a joint statement warning the general public of the risks of the ICOs and investments in digital currencies in general. The same did the Dubai Financial Services Authority (DFSA).


Other countries have taken even more drastic measures against the ICOs and did not stop at just warning. South Korea and China, for example, forbade ICOs altogether.

 

  

TAGS: bafin  germany  ico  cryptocurrency 
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