In some ways, cryptocurrencies are similar to Pet Rock, Furbies or Chia Pets -- everyone wants one because everyone else has one, not because they are in any way inherently valuable. The risks become apparent when a lot of that interest goes away, as we're seeing now with the major sell-off Bitcoin and other cryptocurrencies. 

"I see a trend rather than a currency," said Jillian Manus, VC and managing partner at Structure Capital. "And that's dangerous."

To Manus, cryptocurrencies are a means of creating loyalty for existing companies and hype for new companies via high-flying initial coin offerings, or ICOs. They're marketing tools more than they are a means of storing value or transacting.

"I would caution people," Manus said. "It's an opportunity, not a crutch; a tool, not a currency."

Even amid dramatic crypto price swings, Manus said the most potentially risky area of the nascent landscape are those frenzied ICOs, some of which have raised the likes of $25 million in just an hour.

"There is zero responsibility in what happens," Manus said. "You can't build a company with just money."

ICOs represent a handy token launch or sale for when a company wants to create "a new product with an associated utility, and wants to build an ecosystem of stakeholders upfront who will benefit from purchasing the product early," Deloitte wrote in an ICO report. 

But in the case of ICOs, raising capital can become "very tricky," said Daniel Wager, vice president of global financial crime compliance for LexisNexis Risk Solutions. That's because some offerings can limit the group able to buy to a small number, or demand only cryptocurrency for other cryptocurrency, effectively removing fiat currency from the equation.

"They lack the transparency that regulated securities offerings do," Wager noted. The ICO market is, for now at least, largely unregulated. While the SEC has said it's devoted research to crypto, the market still lacks an authority for digital assets.

"It's like the wild days of the street," Wager said, referencing the time on Wall Street before federal and self-imposed regulation provided rules and standard operating procedures for both securities offerings and individual ethical behavior.

"[This] provides a large opening for market manipulation," Wager added, as price variation, trade activity and even press coverage capitalize on the unregulated nature of ICOs.

The notion of tokenization isn't all bad, however, Manus said. Industry-specific tokens can be used in smart and innovative ways to generate company and brand loyalty, aid in marketing and establish crowdfunding tied to a demand for strong company performance.

Take Eastman Kodak Co. (KODK) for example. According to Manus, Kodak CEO Jeff Clark is "going to be a leader in this."

Kodak earlier this month announced KODAKCoin, its own cryptocurrency created to "empower photographers and agencies to take greater control in image rights management." The coin will operate inside a new KODAKOne platform aimed at democratizing photography with better tools for licensing and managing rights.

Kodak has managed to maintain and provide an "innovative optic," Manus said. "They haven't been able to do that for a long time. They needed that." Kodak emerged from bankruptcy protection in 2013.

Customers can use KODAKCoin to buy Kodak products such as film or accessories, or they can exchange it for fiat currency, Manus explained. Keeping customer transactions within the Kodak framework allows for increased brand loyalty, Manus said, as they're "tethered to the company."

Manus is positive that in the next six months there will be more moves like Kodak's as bigger, more traditional firms offer their own small ICOs. As that happens, regulation and compliance become increasingly necessary.

But the U.S. is unlikely to lead the regulatory charge, instead favoring a strategy of wait-and-see to follow suit as other countries implement regulations, Manus said.

In the absence of an overarching governing body, regulatory standards have largely fallen to exchanges and platforms to develop and implement. According to Wager, protecting against fraud and money laundering and prioritizing transparency have now become requirements, not preferences.

But even with self-regulation expanding, the risk of investing in cryptocurrencies is substantial.

"There are obvious risks to investors investing in any non-fiat currency," Wager said.

Manus said she's concerned by investors putting their entire 401(K) into digital currencies. "It's dangerous," she said. "I don't advise it," she said. "In fact, I run for the hills."

"I would express great caution," Wager said. "It should be treated as the riskiest of investments."

Manus said the sheer number of alt-coins cropping up daily is a matter of concern in and of itself. According to CoinMarketCap, there are now more than 1,300 tradeable digital currencies in circulation.

"That should be a wake-up call for people," Manus said. "There aren't even 1,000 flavors of ice cream."

Watch more from TheStreet's cryptocurrency coverage here:

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