Dutch stock exchange watchdog AFM is warning investors about the big risks related to IPOs using digital currency such as bitcoin.
‘There is a considerable hype around ICOs and this poses a real risk,’ said AFM chairwoman Merel van Vroonhoven in a statement. ‘People put everything they have into digital currency-denominated investments, known as initial coin offerings (ICOs) while the chance is very good they will never see their money again,’ she told the Financieele Dagblad.
ICOs fall out of the remit of the AFM, which says they are vulnerable to manipulation and can be used for money laundering. The hype for high returns blinds people to the risks associated with crypto currencies, forming a ‘dangerous cocktail’, the AFM chairwoman said.
ICOs resemble IPOs in that new internet companies raise money from them all over the world. These companies issue tokens which are bought by investors using digital currency. This year alone some 210 companies have raised €2.3bn through ICOs, according to the FD.
The AFM is not the only watchdog to warn against ICOs, the Financieele Dagblad said. The SEC in Washington DC recently came out with a warning about two companies involved in the business. And the Chinese authorities have forbidden ICOs.