UAE issues warning against initial coin offerings as cryptocurrencies plunge

Securities and Commodities Authority says it doesn't recognise cryptocurrency fund raising

A computer screen displays a site featuring cryptocurrency token sales and ICO (Initial Coin Offering) lists in Berlin on November 26, 2017.
Bypassing oversight of any kind, Initial Coin Offerings (ICOs) have sprung from nowhere to become a hugely popular way for start-ups to raise funds online, offering self-created digital "tokens" or coins to any willing buyer. / AFP PHOTO / John MACDOUGALL
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The UAE's Securities and Commodities Authority, the country's markets regulator, issued a warning to investors against using initial coin offerings amid a sharp decline in the value of cryptocurrencies over the past week.

The SCA warned investors against any fundraising done in cryptocurrencies, be it ICOs, initial token offerings, token pre-sale or token crowd-sale, it said in a statement on its website. The authority sent a circular regarding this matter but it did say who the SCA sent the circular to and a copy of it was not available on the website of the authority. No one was immediately available at the SCA for comment.

"SCA reiterated that it does not recognise, regulate, or supervise any ICO presently and that ICO investments are not offered legal or regulatory protection," the authority said. "It [the circular] said that investors involved in ICO investments are doing so at their own risk. " 
"SCA called upon digital token issuers, intermediaries advising on or facilitating digital token offerings, and digital token trading platforms to seek legal and regulatory advice to ensure compliance with all the applicable laws and regulations."


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Initial coin offerings are used by companies to raise funds in a way that a company would sell shares to the public in a fiat currency and list it on a stock exchange. Many regulators around the world have issued warnings to investors after instances of fraud in the ICO market. In 2017, some $6 billion was raised in initial coin offerings, according to Cointelegraph, a cryptocurrency news website.

While the meteoric rise of cryptocurrencies like Bitcoin has captured the world’s imagination, it has as many people against it as it has for it. There are those who dismiss its worth, including the billionaire investor Warren Buffet, saying it is a bubble waiting to burst. Others chide the lack of regulation and use of the digital currency by crime syndicates and money launderers.

Meanwhile, central banks around the world, including the central bank of the UAE, have been looking at ways to regulate cryptocurrencies. The banking regulator in the UAE is finishing a review that may result in new regulations on the use of digital currencies like bitcoin, a person familiar with the situation said in September.

Bitcoin has lost half its value since futures of the virtual currency were listed on December 10 on the Cboe Futures Exchange in Chicago, one of the world’s largest. On Friday, the price of Bitcoin slipped 5.6 per cent at $8,498, bringing the total market value of the cryptocurrency to $147.4bn.

The fin­ancial regulator of the Abu Dhabi Global Market, the capital's financial free zone, said in October it had set out guidance on initial coin offerings and virtual currencies that allow companies to take advantage of what it says is a more cost-effective way of raising funds.

ADGM's Financial Services Regulatory Authority said there is a need to provide guidance as virtual currencies are not strongly regulated and bringing transparency to the fast-growing area of finance is key to mitigating fraud.

Virtual currencies are treated as a commodity in the guidance laid out by the Financial Services Regulatory Authority. It also warned against investment by those seeking out-sized returns because of the volatile nature of virtual currencies like bitcoin. A spokesperson for ADGM did not reply to an e-mail seeking a comment before the newspaper went to print.