Section 7: What are the risks of investing in ICOs
Starting with the risks involved in ICO investing, first one is the complete or absence of regulations. Unlike IPOs which are monitored by regulatory bodies, ICOs neither follow any regulatory requirements nor is it easy to regulate them. ICOs do not fall under any particular geographic location, making it a challenge to regulate them.
ICOs hardly go through professional due diligence or vetting. In the financial industry, due diligence is the first step taken before making any investments at all. It helps investors understand the investment risks, offers a comprehensive view of the company's financial condition, and analysis the business model of the company. ICOs, on the other hand, have an equivalent of an investment prospectus in the form of a website or whitepaper.
Most ICO projects do not have a proven business model and in most of the cases, not even a ready product. The industry experts agree that most of the ICOs are a longshot at best, which makes it risky to invest in them.
ICOs are not restricted by geographical borders; in this case, if the issuer absconds with the money, there is very little an investor can do to retrieve their funds.
If you have plans to invest in ICOs, understand that these are high-risk investments with little or no guarantees.
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