The Financial Conduct Authority (FCA) has warned consumers of the dangers of investing in cryptocurrency, as concerns grow that they lack any intrinsic value.
Initial coin offerings (ICOs) – not to be confused with initial public offerings (IPOs) – are commonplace in the digital currency market.
Firms offer a form of their own cryptocurrency in exchange for well-known digital currency, such as Bitcoin and Ether, raising millions of pounds in the process.
The new coins can be used as a voucher for future services, or as a share in the firm, but the FCA has warned that they may simply have no discernible value at all.
It says investors hope to earn massive profits by buying into the new currency, but also stand to lose their entire stake.
The latest figures suggest that as much as £1 billion has been invested into ICOs.
“ICOs are very high-risk, speculative investments,” said the FCA.
“You should be conscious of the risks involved… and prepared to lose your entire stake.”
It warned that ICOs were almost completely unregulated, offered no investor protection, were subject to extreme price volatility, and had the potential for fraud. It also warned that the prospectuses for ICOs – sometimes known as white papers – “might be unbalanced, incomplete, or misleading”.
Earlier this year, the Decentralised Autonomous Organisation (DAO) lost around $150 million (£111 million) of investors’ money after its system was breached by cyber criminals – allowing coins to be siphoned off at will.