What are the risks in an ICO?
Just like the returns on an investment in an ICO can be huge, so too can the risks. For those interested to know what are the risks in an ICO, below is a beginner’s guide to the risks in an ICO.
The market is still under-regulated. That means investors may be left on their own if an ICO turns out to be a fraud or the project fails. Neither of these scenarios is uncommon.
But market watchdogs now have ICOs on their radar. In July 2017, the U.S. Securities and Exchange Commission said it may apply federal securities laws to some ICOs on a case-by-case basis. In September of the same year, China temporarily banned ICOs until market regulations are in place. The EU plans to issue regulatory guidelines for ICOs in 2018.
For now, though, it’s a booming unregulated market and a possible bubble that some experts warn may sooner or later burst. So investors need to consider the risks very carefully. It’s not in fact rare for ICO teams to simply run off with investors’ money.
Consider avoiding an ICO if:
- The people behind the project are anonymous, use fake identities or have fake accounts on social networks.
- The team lacks professionals with relevant experience.
- There is no legal entity.
- The whitepaper and business plan sound unrealistic and/or lack detailed analysis of the market and competitors.
- The project’s authors do not provide an example of their blockchain code.
- There is no working prototype.
- There is no escrow wallet for delivering investors’ money to developers (preferably in portions) only when certain criteria are met.
Note that these are just examples of possible red flags and it’s not everything you need to know about ICO risks. Cryptonews.com does not take responsibility for any investment decision. Investors should always assess projects and related risks themselves.
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