The CFTC: Conduct Thorough Research before Purchasing Virtual Coins or Tokens

Initial coin offerings (ICOs) can be a great way for legitimate startups to raise funds by allowing crypto-communities to take part in the projects as well. But, of course, there is a crucial necessity for potential participants to conduct their proper due diligence in such projects just like any other projects from other fields.

This is essentially the new advice and warning, succinctly put, that the U.S. Commodity Futures Trading Commission (CFTC) has issued for customers.

The release, dubbed as “Customer Advisory on Digital Tokens” (PDF), emphasizes the caution and the imperative obligation of a thorough research before diving into the waters of digital currencies. It’s important to note that this new CFTC’s advisory does not focus solely on frauds, but perhaps mostly on projects that are clearly predestined to failure. To help customers analyze and evaluate cryptocurrency projects, the CFTC posted several essential factors that can acutely influence the coins’ value:

  • The potential for forks in open-source applications that could split away market participants, increase the number of digital coins, or make your coins obsolete.
  • Decreasing mining or validation costs (if price is tied to those factors).
  • Acceptance of other currencies, coins, or tokens for offered goods and services.
  • The link between the value of a digital coin or token and the offered product or service.
  • Adoption of the digital coin or token as a broad medium of exchange or store of value.
  • Future competitors or technological changes that could disrupt the underlying business.
  • Future demand or uses for an application, network, product, or service.
  • Liquidity in the market for a specific digital coin or token.
  • Changes to the underlying technology that could devalue your digital coins or tokens.
  • Risk of theft from hacking.

In addition, the CFTC also cautions against ICO frauds and urges to file a complaint when encountering such crypto scams.

Since the beginning of the year, the CFTC has already taken actions against a number of fraudulent virtual currency schemes. For instance, it charged multiple individuals and companies with operating a fraudulent scheme involving binary options and a virtual currency known as ATM Coin; with fraud and misappropriation in ongoing virtual currency scam known as My Big Coin; with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin known as Coin Drop Markets; and with engaging in a Bitcoin and binary options fraud scheme known as The Entrepreneurs Headquarters Limited.

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