The City regulator, the Financial Conduct Authority (FCA) has warned consumers of the dangers of investing in digital tokens issued by the companies.
The so-called initial coin offerings to raise millions of dollars for companies and consumers can earn, even if the new crypto-currency then to go up in value.
But the FCA says investors also stand to lose their entire investment in high-risk investments.
In a first of the broad money supply (ICO), a firm sells digital tokens or “coins”.
These are often in exchange for a more established crypto-currency such as Bitcoin or Ethereum.
The new coins issued by the business may represent a good for some kind of future, services, or a share of the company, or you can simply not have a distinguishable value, the FCA said.
For example, Wild Crypto, an online gambling business, which is the development of a crypto-currency of denomination of the lottery, has sold nearly 34 million “Wild ” coins” for investors.
The consumer has an interest in the management of their money, but invested in the hope that the Wild money lottery token it would take off in popularity.
Companies can raise many millions of dollars in this way. US identity verification firm Civic recently raised $33m (£26m), while blockchain technology firms Bancor and Tezos raised more than $350 million.Buyer beware
But the FCA has said potential investors should be aware of the pitfalls of the Oic:
The majority of Ucis are not regulated by the FCA, so british investors have virtually no return if the investment falls through.
There is no guarantee investors not to be defrauded.
The documentation in support of the ICO can be “unbalanced, incomplete, or misleading”.
Even if the new coins are legitimate, their value can vary wildly.
Typically, companies issue new coins are start-up, which could bend, wiping out the entire value of the investment.
However, companies that have issued coins argue that the lack of control can be good for investors because of the lack of overheads.
Some investors with limited funds appreciate to have direct access to innovative startups.The global concern
Regulators around the world are becoming increasingly concerned with the popularity of Oic.
Last week, China banned the initial coin offer, calling it “illegal collection of funds”.
In July, the US Securities and Exchange Commission warned of the risks of ICOs, and the regulatory authorities in Singapore, Hong Kong and Canada have also highlighted some of the dangers.