The New, Improved Bitcoin (Now With Even Less Regulation)

It seems more and more firms are issuing custom currency to raise capital: think Bitcoin with even less regulation.

Is this a good idea for, well, anyone? Mt. Gox–at the time, the second largest Bitcoin exchange in the world–shut down in 2014 after losing over $400 million in customer assets. The name “Mt. Gox” is an abbreviation for “Magic: The Gathering Online Exchange”, and the site was initially launched to help players of the fantasy card game trade cards with each other. These cards can be pricey–one sought-after card, the Black Lotus, recently sold for $27,000–but managing a currency exchange is an entirely different matter, and the site’s rather spectacular failure should surprise no one.

These Initial Coin Offerings (I.C.Os) have even more potential for abuse, since they are not only unregulated, but designed by the firm’s own finance department. Even in a marketplace seemingly founded on conflicting interests–how much do you trust your broker?–that seems problematic.

My advice for the average investor? Join a discount brokerage, like the one with the cool baby, or the even-cooler Law And Order guy, and search their offerings for zero-commission mutual funds rated at four stars or better. Then, decide how much you can realistically save every month, and invest your age (as a percentage of the whole) in a low-risk fund (such as a bond index), and the rest in a higher-risk fund (a stock fund, or index fund). If you update the balance between low and high-risk funds each year, then over time you’ll invest in less riskier assets more suitable for retirement income.

But don’t take my word for it: Peter Lynch, the cofounder of Merrill-Lynch, tells his brokers “Never invest in any idea you can’t illustrate with a crayon.” Sage advice for a post-Great Recession world.

Initial Coin Offerings Horrify a Former S.E.C. Regulator