The head of the Securities and Exchange Commission has warned Americans tempted by the current frenzy surrounding cryptocurrencies and initial coin offerings (ICOs) to beware of fraud and manipulation risks.
With the price of bitcoin soaring in recent weeks, main street investors have been flocking to cryptocurrency exchanges in the hope of making a quick buck.
Meanwhile, there has been a rash of ICOs, which are attracting the SEC's attention. Just yesterday, the watchdog put a stop to an offering from a restaurant review app after the firm behind it failed to register it as a security.
In a statement, SEC chairman Jay Clayton warns that investors - both main street and market professionals - should consider whether cryptocurrency and ICO investments are legal, whether the trading markets are fair, and whether there are substantial risks of theft or loss.
In addition, main street investors should note that "if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost".
Clayton also warned market professionals that ICOs will often need to comply with federal rules governing the issuance of securities, including registering with the SEC or qualifying for an exemption.
The restaurant review app, Munchee, was seeking to raise $15 million through an ICO to improve an existing iPhone app centred on restaurant meal reviews and create an “ecosystem” in which Munchee and others would buy and sell goods and services using the tokens.
The SEC stopped the ICO because it had not been registered despite the fact that investors could reasonably expect a return on tokens, making it a security. Munchee agreed to halt the offering and refund investors.