European Union:
ESMA Issues Alerts To Firms And Investors On ICOs
23 February 2018
Shearman & Sterling LLP
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ESMA published a statement alerting investors about the high
risks of investment in ICOs, including the risk of total loss of
their investment.
ICOs are a means of raising money from the public, whereby the
issuer issues coins or tokens to be purchased by investors in
exchange for traditional currencies or, more often, virtual
currencies such as Bitcoin or Ethereum. The coins or tokens are
typically created and distributed using distributed ledger
technology (DLT). In its statement to investors,
ESMA cites the key risks of ICOs as: the fact that their structure
may mean they are unregulated instruments; some recent ICOs have
been fraudulent; ICOs are often used by start-ups with an inherent
risk of failure, meaning a high risk of loss of invested capital;
it may not be possible to trade the coins or tokens to exit the
investment; there is a risk of extreme price volatility;
information provided to investors can be limited; and the DLT
technology underpinning ICOs is largely untested and may therefore
potentially contain flaws.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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