The City regulator, the Financial Conduct Authority (FCA) has warned consumers of the dangers of investing in digital tokens issued by firms.
So-called initial coin offerings can raise millions of dollars for firms and consumers can make a gain if the new crypto-currencies then go up in value.
But the FCA says investors also stand to lose their entire stake in the high-risk investments.
In an initial coin offering (ICO), a firm sells digital tokens, or “coins”.
These are often in exchange for a more established crypto-currency such as Bitcoin or Ethereum.
The new coins issued by the firms can represent a voucher for some kind of future services, or a share in the firm, or they may simply have no discernible value at all, the FCA said.
For example, Wild Crypto, an online gambling business which is , sold almost 34 million “Wild coins” to investors.
Consumers got no stake in its operations for their cash, but invested in the hope that the Wild coin lottery tokens would take off in popularity.
Companies can raise many millions of dollars in this way. US identity verification firm (£26m), while blockchain technology firms Bancor and Tezos raised more than $350m.
But the FCA said potential investors need to be aware of :
However, firms which have issued coins argue that lack of oversight can be good for investors .
Some investors with limited funds .
Regulators around the world are becoming increasingly concerned with the popularity of ICOs.
Last week China , calling them “illegal fundraising”.
In July the US Securities and Exchange Commission , and regulators in , and have also pointed out some of the dangers.