Saudi Arabia warns against investment in initial coin offerings

Kingdom joins other regional countries calling for caution in dealing with cryptocurrencies

Bitcoin, the most popular cryptocurrency, has lost more than half of its value since reaching a record $20,000 in December.REUTERS/Ints Kalnins

Saudi Arabia’s regulator, the Capital Market Authority cautioned the public against investment and speculative trading in initial coin offerings (ICOs) because of their associated high risk, potential loss of capital and fraud, state-run Saudi Press Agency reported on Monday.

Other risks include the high volatility of cryptocurrencies, opaqueness related to the valuation of the digital currencies, and the lack of regulatory oversight in the kingdom which makes protecting investors difficult, the agency quoted the authority as saying.

The warning comes amid a proliferation of advertisements to investment in cryptocurrencies, the emergence of websites and marketing campaigns on social media that target Saudi citizens and residents.

Central Bankers, regulatory authorities and officials around the world have issued similar warnings as cryptocurrencies, led by bitcoin, plunge amid high market volatility.

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Bitcoin, the most popular cryptocurrency, has lost more than half of its value since reaching a record $20,000 in December. Some analysts project the currency will fall to $900, according to Bloomberg.

World Bank chief Jim Yong Kim has likened cryptocurrencies to “Ponzi schemes” while billionaire Warren Buffet said “they will come to a bad end.”

Earlier this month, the UAE's Securities and Commodities Authority, the country's markets regulator warned investors against using initial coin offerings. The SCA warned investors against any fundraising done in cryptocurrencies, be it ICOs, initial token offerings, token pre-sale or token crowd-sale. The authority sent a circular regarding this matter.

ICOs are used by companies to raise funds in a way that a company would sell shares to the public in a fiat currency and list it on a stock exchange. Many regulators around the world have issued warnings to investors after instances of fraud in the ICO market. In 2017, some $6 billion was raised in initial coin offerings, according to Cointelegraph, a cryptocurrency news website.

This week the regulatory arm of Abu Dhabi Global Market, the emirate's financial centre, said it's considering a governing framework to supervise virtual currency exchanges and is in consultations with industry participants to chalk it out. The announcement follows preliminary guidance on initial coin and token offerings that the Financial Services Regulatory Authority made in October.