SYDNEY, Sept 28 (Reuters) - Australia's corporate watchdog on Thursday warned investors of the high risks associated with initial coin offerings (ICO), joining a chorus of global regulators who have recently stepped up scrutiny of cryptocurrencies to defuse potential asset bubbles.
ICOs are popular with start-ups as a way to finance projects by selling digital coins or tokens. They have become a bonanza for entrepreneurs globally, fueling a surge in the value of cryptocurrencies this year.
But that has driven fears of an asset bubble, prompting closer scrutiny by regulators. The U.S. Securities and Exchange Commission warned in July that some ICOs should be regulated like other securities. Singapore and Canada followed with similar warnings, while China banned ICOs this month. want to ensure innovative firms understand the regulatory framework they may be operating under and ensure they meet any obligations they may have when raising funds in Australia," said John Price, commission, Australian Securities & Investment Commission (AISC).
"ICOs are highly speculative investments, are mostly unregulated and the chance of losing your investment is high. Consumers should understand the risks involved, including the potential for these products to be scams, before investing."
ASIC said ICOs might need to be covered under AUstralia's regular corporate law depending on the type of the offering, while their legal status will need to be ascertained on how the issue was structured and operated.
Depending on the circumstances, an ICO could either be treated as a managed investment scheme, an offer of shares or an offer of a derivative, it added.
Australia had its first ICO only last month with Perth-based start-up Power Ledger raising tens of millions of dollars. The pre-sale sold out in just over 3 days, raising A$17 million while the public sale is still open.