On 13 November 2017, the AFM issued a press release in which it warns about the risks of Initial Coin Offerings (ICOs). In its press release, the AFM states that the issuance of digital tokens primarily for the purpose of financing start-ups is currently vulnerable to deception, scams and manipulation. The AFM believes that the hype around ICOs and cryptocurrencies have blinded investors to these risks, as a result of which investors face the possibility of losing their full investment. According to the AFM most ICOs are structured in such a way that they fall outside the scope of financial supervision. This means that investors do not enjoy the protection of financial regulatory legislation. The AFM believes that ICOs are highly risky due to the following reasons:
- ICOs currently provide an ideal base for scammers: the anonymous and cross-border character of blockchain technology allows for advanced forms of traditional pyramid play, which are hard to recognize;
- returns are overestimated while projects in ICOs are still in a very early phase of development, as is the underlying blockchain technology;
- most private investors underestimate the specialist knowledge and expertise that is needed to make a well-considered investment decision regarding their investment in ICOs. Without such expertise and knowledge regarding blockchain technology, meaningful earnings models may hardly be different from projects with little to no added value;
- ICO providers often provide little transparency, making it difficult for investors to estimate the value of tokens and to distinguish between bona fide ICOs and fraudulent ones;
- many investments are currently of a speculative nature, which contributes to highly volatile prices of the tokens that are offered. In addition, many tokens know a limited trade, making it relatively easy to manipulate the value of the tokens; and
- ICOs are an ideal vehicle for money laundering purposes due to their anonymous nature and the fact that they can hardly be traced back to individuals.
Against this background, the AFM recommends consumers to refrain from investing in ICOs.
View the press release (Dutch only), 13 November 2017.