The European Securities and Markets Authority (ESMA) issued two statements today, warning investors and firms over the risks associated with digital currencies and their related platforms, Investment Week reported.
ESMA, the pan-European markets regulator, said the "very risky and highly speculative investments" are often unregulated, and could be used for "fraudulent or illicit activities".
The authority said it has "observed a rapid growth in ICOs globally and in Europe and is concerned that investors may be unaware of the high risks they are taking when investing in ICOs".
According to the regulator, the vast majority of ICOs are launched by businesses that are at a very early stage of development, and therefore have an "inherently high risk of failure".
The watchdog warned investors of risks around fraud, total capital loss, illiquidity and price volatility. A lack of accurate and complete information and flawed technology were also raised as concerns.
ESMA identified the volatility of the pricing of the coins or tokens being issued, adding that they have "no intrinsic value other than the possibility to use them to access or use a service/product that is to be developed by the issuer".
The regulator warned of flaws in the coding of the blockchain technology, suggesting it might be susceptible to hacking or unable to cope with heightened periods of activity.