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FCA warns of 'very high risk' in $150bn crypto market

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FCA warns of 'very high risk' in $150bn crypto market

The Financial Conduct Authority (FCA) has issued a health warning on the speculative pricing being built in emerging cryptocurrencies.

In a warning notice, the regulator described initial coin offerings of untested crypto tokens as ‘very high risk, speculative investments’.

It added that some projects touting the future exchangeability of crypto-tokens may be outright scams and that even when legitimate are ‘extremely unlikely’ to be covered by regulation.

The volume of initial coin offerings (ICO) has exploded this summer. The overall market volume climbed as high as $150 billion (£113 billion) according to some estimates, as people spotted the explosive speculative growth of crypto-currencies such as Bitcoin and Ethereum.

Bitcoin has appreciated around 600% versus the USD over the last year.

A series of celebrity-endorsed coins backed by highly-followed individuals such as Paris Hilton and Floyd Mayweather have caught the public’s attention. This is despite a warning by the US Security and Exchange Commission that such issues may be subject to the promotion rules governing equities.    

The notice may also serve as a warning to potential issuers however, saying that the decision on whether individual issues are within the FCA’s remit will be made on a ‘case by case’ basis.

‘Depending on how they are structured, some ICOs may involve regulated investments and firms involved in an ICO may be conducting regulated activities,’ the FCA said in a statement.

‘Some ICOs feature parallels with initial public offerings (IPOs), private placement of securities, crowdfunding or even collective investment schemes. Some tokens may also constitute transferable securities and therefore may fall within the prospectus regime.’ 

At the beginning of September China banned initial coin offerings in the country as part of a broader crackdown on risky financial products, with the National Internet Finance Association of China reportedly describing issuance as ‘disrupting the socioeconomic order and creating a greater risk’.

Both Bitcoin and Ethereum slumped yesterday following rumours of a Chinese plan to ban crypto coin trading on domestic exchanges.

 

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