What do Floyd Mayweather, Paris Hilton and Burger King all have in common, and what on earth do they have to do with your finances?
Believe it or not, they’ve already recently been involved in promoting ‘crypto-currencies’ – virtual money like bitcoin that has been booming all over the world.
Last month, Burger King Russia launched a Whopper-Coin, a digital currency that was given to diners as a reward for spending real roubles with the fast-food restaurant.
Meanwhile, Mayweather and Hilton have both been promoting initial coin offerings (ICOs) – a way for startups to raise money, similar to initial public offerings.
But instead of swapping your sterling for a share in the company, you pay in Bitcoin or other crypto-currencies and receive with digital ‘tokens’ or coins as your stake in the company.
It’s these money-raising schemes that have fallen into the irate gaze of the UK’s financial watchdog.
This week, it issued a no-nonsense warning about the rise of ICOs and the risks investors face by participating in them.
The Financial Conduct Authority reeled off six reasons why investors should be incredibly wary about ICOs.
Firstly, most aren’t regulated – there’s no watchdog policing the information and documentation that is provided to investors, and many take place outside the regulator’s jurisdiction.
And with that, there is no investor protection – you won’t get access to the Financial Ombudsman Service, the independent body that resolves disputes between consumers and financial firms, nor benefit from the safety net offered by the Financial Services Compensation Scheme if a firm goes bust.
The watchdog also warned that these were highly speculative investments in early-stage start-ups, and that the value of the tokens issued to investors can fluctuate wildly.
Indeed, the regulator said that ‘the digital token issued [in an ICO] may… offer no discernible value at all.’
Some ICOs could simply be outright frauds. The practice has already been outlawed in China, where a reported £300m has been invested through ICOs.
Surely, I hear you ask, a normal private investor wouldn’t be getting involved in something so volatile, risky and complex?
Not according to the calls we’ve been getting over the past two months.
We’ve seen a genuine spike in inquiries about Bitcoin investments and ICOs.
Some callers have bought bitcoin, seeing it’s stratospheric growth in value (634% in the past three years), and want to know if they should reinvest in an ICO.
Others are on the lookout for a real return at a time where inflation is at a four-year high and savings rates are dwindling.
Worryingly, many have been pushed to temptation by coming across adverts for Bitcoin and ICOs on their social media accounts.
It is often said that Bitcoin and crypto-currency will disrupt the global financial system as we know it today.
But my advice is to steer clear of any investment being promoted on your Facebook feed or by a has-been reality TV star.
As the Financial Conduct Authority stated in its warning this week, invest in these schemes at your own peril and ‘be prepared to lose your entire stake.’ That couldn’t been clearer.