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ICOs: Financial regulator warns against crowdfunding with crypto-money

Saturday, November 11th, 2017 | bitcoin updates

    (Image: Steve Buissinne, in the public domain (Creative Commons CC0))
             The banking supervisor Bafin points to "significant risks" in the participation in debt financing with cryptocurrency tokens in the form of Initial Coin Offerings (ICOs). These are "highly speculative investments".


        Hardly a day goes by without a hip startup announcing an initial coin offering (ICO). This is the attempt of a Schwarmfinanzierung on the issue of its own "coins" or "tokens" based on the database technology Blockchain, based on about the booming cryptocurrency Bitcoin. The Federal Financial Supervisory Authority (Bafin) now sees this with great concern. It warns of "significant risks" in such "highly speculative investments". Investors would have to adjust to the threat of a total loss of their money.
The term ICO is based on that of the initial public offering (IPO) alias IPO, explains the Bonn authority. This gives the impression that the new form of crowdfunding is comparable to stock issues. But that could be "neither technically nor legally" the speech. Rather, the tokens acquired through ICOs are often subject to large price fluctuations. A secondary market, where investors could resell their "share certificates", is often not liquid or nonexistent. Thus there is hardly a possibility "to withdraw from the investment again profitably".
Experimental StagesTypically, ICO-funded projects are at a very early, mostly experimental stage, Bafin points out. Development and business model are accordingly "untested". Furthermore, investors would find it difficult to verify the alleged functioning of the particular tokens based on the underlying programming code in the form of so-called smart contracts. The corresponding source text is also vulnerable in principle and thus manipulated.
The information provided by the providers are often inadequate, incomprehensible or even misleading, since there are no "regulated brochures", complains the financial supervision. The investor is due to lack of legal requirements and transparency rules on his own if he wants to verify the identity, seriousness and creditworthiness of the token provider and evaluate the investment offered. Also, the data protection is not guaranteed by German standards.
"Fraud, money laundering and terrorist financing" Last but not least, the Bafin ICOs attests a "systemic vulnerability to fraud, money laundering and terrorist financing". Investors could also lose their money if authorities took action against operators or other parties "involved in such illegal trades". Interested consumers should therefore at least "ask as many questions as necessary and verify their information from independent sources" to an issuer.
The young capital acquisition process is internationally controversial. While Estonia is planning a state crypto money in the form of "Estcoins" via an ICO and Crypto Fund AG wants to launch a relevant investment fund in Switzerland, China and South Korea have already banned such swarm financing. Cyber ​​attacks and scams continue to occur around ICOs. The US Securities and Exchange Commission (SEC) also highlighted risks in this type of investment in July, stressing that investor protection laws must be respected.
 (Stefan Krempl) /




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