BaFin has issued a warning regarding the risks of initial coin offerings. BaFin points out that the acquisition of cryptocurrency coins – also referred to as tokens, depending on their form – as part of so-called “initial coin offerings” (ICOs) may result in substantial risks. Investors should be prepared for the possibility of losing their investment completely. According to BaFin the numerous downside risks include:

  • significant price fluctuations;
  • no liquid secondary market;
  • no tested business model;
  • insufficient information;
  • fraud.

The BaFin states that before any consumer decides to participate in an ICO, they should make certain that they have fully understood the benefits and risks of the project or investment. They should also ask the issuer as many questions as necessary and verify the issuer’s information from independent sources. The BaFin adds that, investors should ensure that the characteristics of the project or investment match both their investment needs and their appetite for risk.

More detailed information on ICOs and their risks will be published in the BaFinJournal on 15 November. An English translation also be made available.

The BaFin provides further notes on blockchain technology and virtual currencies under the menu item ‘Company start-ups and fintech companies’ on its website.

View the full consumer warning here.