SAN FRANCISCO • The cautionary words of United States regulators have done little to chill a red-hot market for new virtual currencies sold by start-ups.

The Securities and Exchange Commission (SEC) issued its first warning late last month for the many entrepreneurs who have been raising money by creating and selling their own virtual currencies in what are called initial coin offerings. At that point, hundreds of projects had raised more than US$1 billion (S$1.37 billion).

Yet even after the commission said it was looking closely at projects that may have violated its rules, programmers are still embarking on new offerings at a torrid pace. Most of the offerings have little legal oversight and some appear to conflict with the SEC's basic advice.

"The broader detail and the silences in the report should give many people pause and that doesn't seem to have happened yet," said Ms Emma Channing, general counsel at the Argon Group, which helps projects in the industry to raise funds. "I don't understand why everyone isn't as concerned as I am."

Since the SEC guidance was released on July 25, 46 new coin offerings have been announced and an additional 204 are moving towards fundraising, according to data from Tokendata.io. In contrast, only three projects have said they are cancelling or postponing the sale of coins because of the warning.

July was the biggest month for coin offerings, with 34 projects raising US$665 million, Tokendata.io data shows - or twice as much money as was raised in the first five months of the year combined.

For investors, the most immediate risk is less likely to be the regulators, and more likely to be the many projects that are proceeding without a credible plan for putting out successful software - something that many sophisticated investors have warned about. Many coin offerings have also had security vulnerabilities that have led to big losses for investors.

But even projects that build successful software could be punished if the commission carries through with its warning.

The SEC said it would focus on coins that should be categorised as securities. People selling securities to US investors are generally required to register themselves and their investments with the securities regulator.

So far, almost none of the coins being sold to investors had been registered with regulators. Many entrepreneurs creating virtual currencies have argued they are not securities because they are intended to be used as the internal method of payment in the software that the entrepreneurs are creating.

The DMarket token, for instance, is expected to be used to pay for video game points and products in a new marketplace being built by the token's creators, and those creators have said they do not consider it a security.

But many lawyers in the industry have been warning entrepreneurs that just because a coin is intended to serve as a payment method does not mean that it cannot also be categorised as a security.

They also expect more problems for the virtual currency exchanges that allow investors to trade coins that should be categorised as securities, even if the securities are not fraudulent.

"I'm sad to say I think we will see one or more exchanges get hit by a fairly significant SEC enforcement," Ms Channing of the Argon Group said.

If exchanges are punished, it is likely to drive down prices throughout the market because it will make it harder to buy and sell all virtual currencies. A handful of upcoming coin offerings have hired lawyers to carefully devise investments that play by the rules.

NYTIMES