Initial coin offering

(ICO).

Initial coin offering is a high-risk investment scheme in which investors receive interest in cryptocurrencies.

The European Securities and Markets Authority (ESMA) has warned investors that there is a “high risk of losing all of their invested capital as ICOs are very risky and highly speculative investments”.

ESMA has also noted that ICOs are vulnerable to the risk of fraud or money laundering.

ESMA points out:

“The price of the coin or token is typically extremely volatile and investors may not be able to redeem them for a prolonged period.

Another key risk stems from the fact that, depending on how they are structured, ICOs may fall outside of the scope of EU laws and regulations, in which case investors cannot benefit from the protection that these laws and regulations provide.”

Turning to issuers, however, ESMA says that some forms of ICOs may be structured in such ways as to be subject to the same regulations as more standard financial instruments.

ESMA notes that it is “likely” that firms behind ICOs with those features are conducting “regulated investment activities” – in which case, “they need to comply with the relevant legislation”.

Initial coin offerings are sometimes also known as initial public coin offerings (IPCOs).

See also

• Cryptocurrency
• European Securities and Markets Authority
• Financial instrument

Other links

ESMA statement November 2017