The Commodity Futures Trading Commission (CFTC) has issued their fourth warning on consumers purchasing cryptocurrency. The “Customer Advisory told investors to use caution and to extensive research prior to purchasing virtual coins or tokens – including “self described utility coins or consumption coins.”
The CFTC website states that due to the unregulated nature of the crypto market, “pump and dump” schemes are being seen all too commonly. The bulletin points out that it is precisely due to the unregulated status of the market that entities such as the CFTC cannot directly police the industry.
The utility tokens are a kind of user tokens that enable clients to access a blockchain-based platform or service (e.g. food delivery or online games). If the project behind that utility asset succeeds, then the early token investor, will sell their coins with a high profit.
“Buying digital coins or tokens only because you expect to sell them at a higher price later is the definition of speculation and carries considerable risk, regardless of how good a white paper, application or business plan sounds. Unfortunately, fraud is another significant risk to consider. Your best protection is to thoroughly research digital coins or tokens and exercise caution,”
Additionally, the CFTC is warning investors to adjust their expectations of the tokens they buy. There are many ways in which the value of a token can be influenced, including forks, mining changes, merchant adoption, and so forth. For most ICO tokens, demand will die out pretty quickly. Close to 90% of all initial coin offerings fail or turn into scams in the first year, after all.
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