In a November 13 press release, the Dutch Authority for the Financial Markets (AFM) advised the public against investing in token offerings “under the current circumstances,” according to a translation. The body cautioned that the fundraising mechanism, also known as an initial coin offering (ICO), is “vulnerable to deception, fraud and manipulation,” and that as a result, token offering participants “run a very high risk of losing their entire deposit.”
Scams are common in the space, the document contends, because “the anonymous and cross-border character of blockchain technology enables advanced forms of a traditional pyramid scheme that are difficult to recognize.” The AFM also notes that token offering scams have already been identified in other countries.
Additionally, the hype around cryptocurrencies and the high level of expertise needed to thoroughly evaluate the merits of proposed blockchain projects leave the average person poorly positioned to appraise the worthiness of such investment opportunities. And the fact that “ICO providers are often not transparent in their information provision” further increases the likelihood that investors will make poor choices.
To make matters worse, token offerings are often structured in such a way that they are not subject to regulation so, in some cases, those who have lost their investments have no legitimate means by which to recover them.
The press release also included a quotation of AFM Chairman Merel van Vroonhoven, who said, “The high risks of scams and loss of deposits in combination with the hype surrounding ICOs of this moment is a dangerous cocktail.”
In June 2017, the AFM issued a similar warning on the topic of “investing in virtual currencies,” cautioning would-be holders that digital assets’ values are highly volatile, among other admonitions.