Capital markets regulator, the Securities and Exchange Commission of Zimbabwe has warned investors against “dealing with unregulated exchanges and securities” in the wake of plans by Harare-based cryptocurrency trading platform Golix.com to issue a multi-million dollar Initial Coin Offering (ICO).
An ICO is the equivalent of an Initial Public Offering (IPO) in common stocks, where a company offers a fraction of its shares to the public for a fee, to raise money to fund development and growth.
In an ICO, companies sell digital currency tokens in any of the established cryptos like Bitcoin or Ethereum. In return, investors receive a “stake” in the entity, usually represented by the issuance of a new virtual coin(s).
Worldwide, nascent financial technology firms in the cryptocurrency space have for this purpose found Initial Coin Offerings as the go-to place, with more than 230 ICOs worth about $3,7 billion floated in 2017, according to Coinschedule.com, an online database of similar transactions.
But because cryptocurrencies divide opinion, on the one hand unwanted by global monetary authorities, and, on the other, worshipped by technology enthusiasts, ICOs have often run into trouble, drawing condemnation from governments, central banks and financial regulators.
China last year banned Initial Coin Offerings, labelling them a “fraud” that drives crime.
The Business Weekly can reveal that crypto exchange Golix is to issue a multi-million dollar ICO to fund expansion in Africa, targeting some of the continent’s leading economies Nigeria, Kenya, South Africa and others.
Details remain sketchy, but sources close to the developments said the ICO will seek to raise not less than $10 million in the form of crypto money.
Golix, which traded around $1 million Bitcoin’s worth over the last month, will by the end of March have come to the market with its Offer, and at the latest, in the second quarter, sources said.
“We intend to establish which markets in Africa we are likely to go into, markets that have potential, that give us traction,” said a source that preferred anonymity.
Securities Exchange Commission of Zimbabwe (SecZim) chief executive Tafadzwa Chinamo told the Business Weekly that no ICO had registered with it, as would companies looking to an Initial Public Offering.
That’s largely in part due to a lack of regulation of cryptocurrencies in Zimbabwe, he said. Zimbabwe’s law does not define cryptocurrencies as a security, which means they cannot be regulated.
“The SecZim has no business in the proposed Initial Coin Offering,” Chinamo thundered, by email.
Echoing the sentiments of ill-effect by Reserve Bank of Zimbabwe chief Dr John Mangudya a few weeks ago, Chinamo cautioned the “investing public against dealing with unregistered exchanges and securities as there’s no regulatory protection in case of mishaps.
ICOs that have issued elsewhere in the world to raise money haven’t exactly made disclosures in the manner prescribed by the countries’ respective financial regulators, as would in an IPO.
Here, in an Initial Public Offering companies must file registration statements, including a prospectus, financial statements dating back five years, and these disclosures are subject to review for compliance, said Chinamo, the SecZim chief executive.
The company is also required to be valued by independent financial advisors to assess the fairness of the share price quoted in the IPO.
Chinamo explained that the process of an IPO is “governed by strict rules that foster a high level of transparency and disclosure such that investors are not duped by unscrupulous persons who sell securities that are worthless.”.
For the Initial Coin Offering, firms often release a white paper explaining their strategy, that they hope will fly with prospective investors..
Amid concerns of loss or fraud, we put it to Tawanda Kembo, chief executive at Golix, what safeguards or legal protections may or may not be available to an investor in the event of fraud, a hack or malware, on his exchange or with the ICO?
We asked him, who will be responsible for refunding one’s investment if something goes wrong?
Kembo did not respond despite assurances to do so.
For Chinamo, the writing is on the wall.
“Investing in cryptocurrencies in Zimbabwe is a personal decision,” he opined.
“The SecZim advises against investing in securities that are not regulated for obvious reasons. Investment in cryptos in Zimbabwe is not protected by any law in any way.”
His message is likely to find few takers, however. The digital currency mania is slowly taking a hold in Zimbabwe.
At Golix, Zimbabwe’s only crypto money exchange, volume has climbed to about 8 Bitcoins each day, or $160 000 equivalent, from just a very few dollars two years ago, when the platform opened for trade.