Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
CFTC tells investors that digital tokens promoted by businesses may either be categorized as securities, derivatives, and commodities, depending on how they are structured.
Once again a U.S regulatory body has issued a new advisory asking ICO investors to do their own homework before putting their hard-earned money into it. This time it is the Commodity Futures Trading Commission (CFTC) who has issued a customer advisory titled “Use Caution When Buying Digital Coins or Tokens” where the agency writes:
“Understand what rights are attached to the coin or token being sold, and what underlying factors could affect its value. Be especially wary of promises or guarantees of future value.”
It further adds:
“The market for digital coins and tokens is still very young, and there is no widely-accepted standard for placing a value on a particular digital coin or token. This includes coins or tokens sold today with the claim that they can be used to purchase goods, services, or platform access in the future.”
Moreover, the CFTC also mentions the “network effect” wherein the projects tend to claim that they will certainly grow over the period of time and so will be the value of their digital tokens. The U.S. Securities and Exchange Commission (SEC) has told several times that to prevent investors from falling prey to such schemes, it is necessary that the digital tokens be treated as securities.
A few months back, the SEC also created a fake ICO website called the HoweyCoins to educate investors about how the fraudulent ICO schemes can look like. The SEC said:
“If You Responded To An Investment Offer Like This, You Could Have Been Scammed – HoweyCoins Are Completely Fake! “We created the bogus HoweyCoins.com site as an educational tool to alert investors to possible fraud involving digital assets like crypto-currencies and coin offerings.”
CFTC, which is the regulatory watchdog of the derivatives and commodities marketplace, also wrote in the advisory that digital tokens are not always securities, as they can also be treated as commodities depending on how they are structured. It wrote:
“Depending on the facts and circumstances, if initial buyers are told that the developers or promoters will bring them a return on their investments, or if the buyers are promised a share of future returns of the project, the digital coins may be securities and the offer and sale would be subject to federal securities laws.2 Digital tokens and coins can also be derivatives or commodities, depending on how they are structured.”
There have been multiple reports emerging off lately based on the survey conducted by different financial research bodies of how the ICO market has been full of fraudulent schemes and how much investor money is lost in such matters. Satis Group, a premium advisory firm had prepared a research which states that 81% of ICOs conducted last year turned out to be scams.
According to the report published by Satis Group Crypto Research, scams were identified as projects that didn’t initially plan on following their roadmap, or were deemed by the community as scams.