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 developing a crypto-currency lottery, 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 Civic recently raised $33m (£26m), while blockchain technology firms Bancor and Tezos raised more than $350m.

Buyer beware

But the FCA said potential investors need to be aware of the pitfalls of ICOs:

• Most of the ICOs are not regulated by the FCA, so UK investors have virtually no comeback if the investment falls through.
• There's no guarantee investors aren't being defrauded.
• Documentation supporting the ICO can "unbalanced, incomplete or misleading".
• Even if the new coins are legitimate, their value can fluctuate wildly.
• Typically firms issuing new coins are start-ups, which could fold, wiping out the entire value of the investment.

However, firms which have issued coins argue that lack of oversight can be good for investors due to a lack of overheads.

Some investors with limited funds also appreciate having direct access to startups.

Global concern

Regulators around the world are becoming increasingly concerned with the popularity of ICOs.

Last week China banned initial coin offerings, calling them "illegal fundraising".

In July the US Securities and Exchange Commission warned of the risks of ICOs, and regulators in Singapore, Hong Kong and Canada have also pointed out some of the dangers.