Germany's primary financial and securities regulator has joined a growing list of global counterparts in warning investors of initial coin offering (ICO) risks.
The Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), German for the Federal Financial Supervisory Authority has warned investors of "substantial risks" in "highly speculative" ICO investments.
In a notice published yesterday, the financial authority wrote:
ICOs are a highly speculative form of investment. Investors should therefore be prepared for the possibility of losing their investment completely. As is the case with most new trends, the high level of public interest in ICOs is also attracting fraudsters.
ICO funding, a radical new form of fundraising where startups and companies raise capital in cryptocurrencies in exchange for blockchain-based tokens, cannot be compared to the issuance of shares from 'either a technical or legal standpoint', the regulator added.
ICO-issued tokens are also "often" prone to significant price volatility with the added risk of absent secondary markets for investors to liquidate their tokens, BaFin said, adding that the information presented by ICO operators are also "often insufficient."
"Due to the lack of legal requirements and transparency rules, the consumer is left on their own when it comes to verifying the identity, reputability and credit standing of the token provider and understanding and assessing the investment on offer," read an excerpt from BaFin's notice to investors. "It can also not be guaranteed that personal data will be protected in accordance with German standards."