On Sunday, BaFin, the highest ranked financial regulatory body in Germany has called for international efforts to control and monitor the sky-by-night cryptocurrency projects issuing non-secured Initial Coin Offerings ( ICO). The call for a stringent monitoring framework has been on the rise from regulatory bodies of several nations where cryptocurrencies become a dominant financial product. The United States, the regulatory institution has already been denouncing the impact of these defunct-ICOs and the need to better monitor offerings.
Federal Financial Supervisory Authority (BaFin) Chairperson, Felix Hufeld in a conversation with the financial publication, expressed that:
“The number (of ICO) and the volume (of money) per ICO are both getting higher. Investors have mostly minimal rights…I can thus only recommend private investors keep away from such things.”
Germany’s perspective about cryptocurrency has been about asking for international-level of regulations, where other countries also collaborate, and there is the simultaneous imposition of these rules.
Back in January 2018, the country’s largest bank Bundesbank’s Board member Joachim Wuermeling had said,
“Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation because the regulatory power of nation-states is obviously limited.”
In the US, the SEC has been acting down strongly against companies involved in crypto-based crimes and blockchain operations which have exploited vulnerabilities of the investor community. Texas is one of the states in the United States to work at controlling these crypto-risks at the state levels.
Other countries such as China have already banned operations of cryptocurrency exchanges in the country. The result of the strong action was that Chinese traders simply moved their operations to neighbor Japan and South Korea-based exchanges.
Much of the concerns raised by heads of regulatory bodies worldwide stems from the fact that markets across the world are witness fraud and scams related to ICO offers.
Typically these offers disappear after the initial phase of fund-raising. Investors wanting to cash in on the opportunity to invest early and ride the early-adopter price benefit, as these tokens eventually gain at prices in crypto markets has been the reason for the prolonged success of these ICO scams.
Hence, there is value in the latest appeal made by Hufeld. He proposes that as regulators the respective institutions should focus on self-regulation before asking for a mainstream blanket ban on these financial products. Hufeld opines that ICO could well be niche product or issue. It is yet to be seen if these ICO will eventually grow to be a financial product which will have a sweeping impact across economies.
Until then, these products will be small instruments which require monitoring and scrutinizing for their fraudulent practices. Additionally, it is the most conducive environment to develop a framework for ‘long-term’ protective practices to introduce international or standardized regulation which will ensure that there is sufficient and constant pressure on such firms and companies to engage in such practices. Multiple “international forums” would be the ideal platform for curtailing the activities of such offerings.