Should investors be wary of cryptocurrency offerings?

Canadian regulators have released new guidelines to address a new form of fundraising

Should investors be wary of cryptocurrency offerings?
Canadian securities regulators have released a new set of guidelines aimed at a novel fundraising approach that they’re concerned could put investors at risk.

Certain tech companies have started to raise funds through initial token offerings (ITOs) or initial coin offerings (ICOs), where early investors exchange money for digital tokens or coins, reported CBC News.

Many of these offerings are not being subject to the strict rules that govern initial public offerings (IPOs) because they have been treated as currency. But while most of the digital offerings have come in the form of established cryptocurrencies, the Canadian Securities Administrators (CSA) has explained that some coins or tokens offered should be regarded and regulated as securities.

“Every ICO/ITO is unique and must be assessed on its own characteristics,” the body said in a notice issued last week. “For example… if an individual purchases coins/tokens whose value is tied to the future profits or success of a business, these will likely be considered securities.”

The notice from regulators underscored the importance of assessing each offering on a case-to-case basis, while attempting to outline which securities laws should apply for specific cases.

Stakeholders in the cryptocurrency industry said they appreciate efforts at clarification, but have also expressed concern that regulators might wind up inappropriately putting certain ICOs or ITOs in the same regulatory bucket as IPOs.

“A network access token is a lot more like a private currency,” Chris Horlacher, CEO of software firm Equibit, told CBS News. He noted that the vast majority of ICOs “have been around for decades” and are closer to Air Miles points than they are to stocks.

“[N]one of these have ever been deemed a security,” he said.

Horlacher conceded that some ICOs are being used to market investment funds that should be treated more like equity investments, but insisted that such examples are the exception, not the rule.

The CSA has offered assurances that it is not cracking down on the industry, but is simply making sure firms that raise funds through these channels are aware of the rules.

“We are open to innovation but we need to ensure that investor protection will be there,” CSA Chair Louis Morisset said in an interview with CBS News. “There's no guarantees on these investments, but at least investors will have the full package of information that will allow them to make an informed decision.”

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