What has happened?

The Commodity Futures Trading Commission (CFTC) has issued new guidance, alerting customers to exercise caution and "conduct extensive research" before purchasing digital coins or tokens.

What does this mean?

The new advisory, entitled "Customer Advisory: Use Caution When Buying Digital Coins or Tokens", warns customers to view any promises or guarantees of future value as a “red flag".

"The market for digital coins and tokens is still very young, and there is no widely accepted standard for placing a value on a particular digital coin or token. This includes coins or tokens sold today with the claim that they can be used to purchase goods, services, or platform access in the future," the advisory said.

The CFTC therefore advises customers to ensure that they understand what rights are attached to the coin or token being sold, and what underlying factors could affect its value.

"Be especially wary of promises or guarantees of future value," the CFTC added.

The agency emphasised that research is the best form of protection.

Customers should research both the digital coins or tokens and the individuals or organisations offering the products.

If information is not readily available, then customers should be wary about purchasing the products.

The CFTC also noted that the digital coins could also be securities if buyers are told that the developers or promoters will bring them a return on their investments, or if the buyers are promised a share of future returns of the project.

Digital tokens and coins can also be derivatives or commodities, depending on how they are structured.

This is the fourth advisory about virtual currencies issued by the CFTC.

It mirrors many other warnings issued by global regulators, including several by the US Securities and exchange Commission.

Next steps

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