The Financial Conduct Authority (FCA), the United Kingdom’s economic watchdog, just announced that it’s taking a deep look into the rapidly growing market for initial coin offerings (ICOs).
On Friday, the regulatory authority said that it would undertake an assessment of the ICO market – an examination that will potentially open the door to more regulations. The FCA has already issued a warning to its citizens when it comes to cryptocurrencies, urging consumers to consider the “high risks” involved with investing in ICOs.
With cryptocurrencies like bitcoin, ether, and litecoin racking up a ton of popularity (and value) in the past year, new blockchain-related companies are sprouting up left and right – and they are launching new cryptocurrencies to fund their start-up ventures.
These companies hold ICOs, called “token sales” if they are new coins on the ethereum blockchain, during a set window of time and frequently offer bonuses or other incentives to early participants. They typically ask for ETH or BTC in exchange for their soon-to-be-issued cryptocurrency units, which may or may not skyrocket in value once it hits the exchanges.
Not only are is the potential for capital gains pretty high, so is the risk of losing your funds.
Since ICOs began, there have been rampant scams and pump-and-dump schemes – there are very legitimate reasons for financial regulators around the globe to be nervous. The risk is even higher when you consider the anonymity involved in trading cryptocurrencies, which naturally attracts people with less-than-legal intentions.
At this point in time, however, the FCA doesn’t regulate bitcoin or any other cryptocurrency. In fact, it’s Chief Executive told the BBC on Thursday, December 14 that he wouldn’t encourage oversight for digital currencies – just as long as consumers are fully aware of the risk of their investments disappearing.