Cryptocurrencies may be all the rage right now, but the UAE’s Securities and Commodities Authority (SCA) has a warning for consumers looking to dabble in them.
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Specifically, the SCA has warned against making any hasty decisions on initial coin offerings (ICOs). An ICO is a way for a company to raise funding through issuing digital tokens that often come in the form of a cryptocurrency. The Telegram messenger app, for example, is hoping to raise $2 billion through issuing its own tokens. And Ripple’s XRP currency was floated in an ICO.
It’s sort of like buying shares in an initial public offering (IPO). Except you’re not actually buying a share in the company – you’re buying a digital token that the company says will be worth a certain amount by a certain time.
Naturally, this is risky business. And with thousands of companies all around the world conducting ICOs, it can be difficult to separate the good investments from the bad.
And the UAE’s SCA has thrown its advice into the issue, saying that potential investors need to be aware of the risks involved.
“The SCA reiterates that it does not recognise, regulate, or supervise any ICO presently and that ICO investments are not offered legal or regulatory protection. Investors involved in ICO investments are doing so at their own risk,” the SCA said in a circular published by the UAE’s state news agency, WAM.
“[ICOs are] highly speculative and highly volatile regarding prices.”
To avoid being the victim of fraud, or simply of a bad investment, the SCA advised people to seek regulatory and legal advice on the protections that are afforded them when it comes to ICOs. However, it added that ICOs do not come with legal protection in the UAE.
The SCA also called on the companies conducting ICOs, and those facilitating ICO transactions – i.e. the cryptocurrency exchange houses – to ensure that they comply with local regulations.