Bitcoin has fallen 12% over 24 hours while the chairman of UBS warned against investing in it and South Korea continued to crack down on cryptocurrencies by banning anonymous trading.
Talking at the Davos world economic forum, UBS Chairman Axel Weber, said that bitcoin and other cryptocurrencies were speculative, risky and “not an investment we would advise”.
“Retail clients, who don’t fully understand these products, should be protected from going into these products, because if there is a retail client affected in the future, the question will be again who was the bank that sold them these products and then banks will be blamed again for what has happened,” Weber told CNBC.
UBS’s comments echo those recently made by billionaire investor Warren Buffett, who said he would never invest in cryptocurrency despite bitcoin’s nearly 2,000% rise in 2017.
Consultancy Ernst & Young also warned Monday that so-called initial coin offerings (ICOs), which offer cryptocurrency tokens to raise funds, were at risk of cybercrime. Of the 372 ICOs analysed, raising a total of $3.7bn, roughly $400m had been stolen by hackers, who were taking up to $1.5m in ICO proceeds per month.
An initial coin offering (ICO) is when a new cryptocurrency company offers a portion of its tokens for sale all at once to jumpstart trading, raise funds for continued development and earn a return on investment for its founders.
The name is analogous to an IPO, or initial public offering – the moment a privately-held company first lists its shares on a public stock market. But, as financial regulators will tell you, the similar names doesn't mean they have similar legal statuses, and companies running ICOs have to be very careful not to imply they're selling an investment in their business.
Still, that hasn't stopped some companies making a killing by offering their cryptocurrencies for sale. Filecoin, a blockchain-based data storage company, raised $237m in its September ICO, while Tezos, which aims to create a competitor to more established cryptocurrencies such as bitcoin and Ethereum, raised $232m in July. Still, the prize for chutzpah has to go to Bancor, which raised $153m in its June ICO for its cryptocurrency that powers a decentralised application for running ICOs.
The warnings of theft from ICOs come as the chair of the US Securities and Exchange Commission, Jay Clayton, said the agency had seen “disturbing” evidence that investors in ICOs had been counselled that they did not need to comply with federal securities law.
“I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the US securities bar,” Clayton said.
The statements of governments around the globe suggesting regulation is on the horizon have led to the vast cryptocurrency price fluctuations that have seen bitcoin halve in value since its high of just under $20,000 in December.
Bitcoin trading was down approximately 12% over the last 24 hours, trading at around $10,400 on Tuesday morning on the Bitstamp exchange, following news that South Korea – the world’s third-largest cryptocurrency market – would implement its planned ban on use of anonymous bank accounts in cryptocurrency trading from 30 January.
South Korean Financial Services Commission vice chair Kim Yong-beom said that the new measures will prevent those residing outside South Korea who do not have local bank accounts and minors younger than 19 from buying or selling bitcoins and other digital currencies. The move forms part of the country’s action to curb cryptocurrency trading, including the raiding of local exchanges over money laundering, with the government looking at a potential ban on trading.
Local investors remain bullish, however, with one South Korean trader identified only as Ahn telling Reuters that “everyone knew this was coming, as the government already said they will enforce the real-name system before.
“Rather, I can see this as a chance to go in, not out. I don’t see any reason to take my money out”
Beyond simple trading, the hype in cryptocurrency and blockchain technology has also caused concern, as companies seek to take advantage of investor buzz. Firms including camera-maker Kodak, fintech firm LongFin, power firm Digital Power, tobacco company Rich Cigars, tiny US drinks firm Long Island Iced Tea Corp and many other smaller companies have all seen their share price rocket through pivots towards cryptocurrencies or blockchain technology.
The SEC said it would begin scrutinising public companies that change their name or business model in a bid to capitalise upon the hype surrounding blockchain technology.
“The SEC is looking closely at the disclosures of public companies that shift their business models to capitalise on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering,” said Chairman Jay Clayton on Monday.
The yo-yoing in value of bitcoin, ethereum and ripple, among other cryptocurrencies has led economists to warn that the cryptocurrency bubble could be bursting.
“When it will fully burst is anyone’s guess and prices could yet rise again, before they fall further ahead,” Capital Economics warned in a recent research note. “Triggers for the bubble to burst could be a further crackdown by regulators or a major hacking attempt.”