October 12, 2017
By: Steven Anderson
One great example that people love to bring up in a bubble market is the Dutch tulip mania of roughly 1637, though records from that period are a bit spotty. When that took place, tulip bulbs were selling in the Netherlands for costs of staggering magnitude, so much that even one tulip bulb was selling for the equivalent of 10 skilled craftsmen’s annual income. Some are wondering if cryptocurrency might end up the same way, and are taking measures accordingly. Two new countries have recently come out against it to certain degrees: Abu Dhabi and Slovenia.
Abu Dhabi is taking this seriously, to the point of going into full regulatory mode. While it notes that the initial coin offering (ICO) market is “…incredibly diverse in terms of quality…” it notes that “…some ICOs…constitute high risk.” With no disclosures or financial statements like equities are required to have, that makes these something of a risky proposition, or so Abu Dhabi’s Financial Services Regulatory Authority (FSRA) believes.
Thus, the FSRA is requiring any new ICO in the region to first consult with the FSRA to see if it falls under current guidelines. If it does, it will need to publish a prospectus, and those who look to sell ICO units will need to have the FSRA’s approval to do so.
The Financial Stability Board (FSB) of Slovenia, meanwhile, offered similar guidance, noting that cryptocurrencies are neither regulated nor backed by any government entity. Thus, this was a potentially risky scenario for citizens of Slovenia, some of whom consider cryptocurrency—and not necessarily in error—an investment opportunity.
I can’t help but find Slovenia’s response better here. Granted, it’s worth the warning to perhaps less sophisticated investors who heard the word about bitcoin’s rise from 10,000 for two pizzas to $4,000 each and thought that that would happen everywhere. But for those who just take out some light fliers in these new cryptocurrencies, people who are risking the equivalent of dinner for two on the issues, it shouldn’t be a farm-loser if there’s some investment.
Abu Dhabi’s approach is a little more cautious, perhaps a little too much so. While there’s definitely risk, trying to protect citizens that hard is likely to backfire. Slovenia’s approach might have been the way to go here.