Canadian policy-makers — torn between hype about the revolutionary potential of blockchain technology on one side and the wild volatility and rampant fraud in the emerging world of cryptocurrencies on the other – should be commended for their efforts thus far to nurture innovation without abandoning investor protection.

The financial services sector is on a rowdy ride at the moment. Much of the sector is in the midst of a fundamental transformation from an old-fashioned, face-to-face business into a technology-driven enterprise. Venerable financial services institutions and central banks alike are exploring the potential of blockchain (a.k.a. distributed ledger) technology to change entirely the way transactions are executed, recorded and verified. The very nature of trust, which underpins the entire financial system, is evolving.

At the same time, investors are facing an onslaught of dubious investment propositions based on this technology. Billions of dollars have been raised through initial coin offerings (ICOs) – the legal status of which is uncertain, based on business propositions that often are dubious at best.

Failing companies are turning themselves around simply by adding the word “blockchain” to their names and promising a move toward bitcoin “mining” – a move that inexplicably has been rewarded with soaring stock prices. And fortunes have been made, and surely lost, by ordinary investors trying to ride the bitcoin wave over the past few months.

Financial services sector policy-makers are caught between these conflicting, competing movements. And, in some markets, officials are responding by cracking down. For example, regulators in other jurisdictions are shutting down bitcoin trading entirely, outlawing cryptocurrency mining and banning ICOs.

Policy-makers in Canada, to their credit, are taking a more measured approach. Securities regulators have approved certain ICOs and cryptocurrency investment schemes while imposing conditions that are designed to provide investors with some protection yet allow the industry to innovate and risk-loving investors to speculate.

This may not be the safest approach, but it’s a prudent one.