Cryptocurrencies are all the rage at the minute. After a dip in July, Bitcoin has continued on its upward trajectory and recently hit the US$5,000 mark. I’m on the fence, but I’m not wholly sure that the increase is reflective of its value as an asset, rather the inflationary led depreciation of the USD as fiat money.
This boom in cryptocurrency means that as of July this year, some Tech start-ups are opting to ditch the traditional fund-raising methods of venture capital and raised more than $1.3bn in initial coin offerings (ICOs) (Link). In fact, 2 companies, Tezos and EOS raised more than US$200m each in recent months.
However, with any trend, for every genuine investment opportunity, you can add a couple of zeros to the end of that number, and that’ll be how many less than salubrious characters are looking to cash in and make a quick buck. Just yesterday, China banned ICOs and warned of financial scams (Link). I also had the pleasure lunching in Jakarta a couple of weeks back and overheard a few questionable types formulating their ICO ‘opportunity’ that screamed ‘pump and dump’.
So how can you stop this happening? As with any investment, nothing can be predicted or proved with absolute certainty. However, a few basic investment considerations should still apply:
- Ask to see the business plan and a record of any work-in-progress.
- Do your due diligence and make sure it’s a legal entity with a proven team behind it.
- Understand the risks and know that it’s an investment that sits outside the usual market regulations.
- Ask around or search the internet to see if anyone has heard of the company and/or the founders.
- Ensure you have a professionally drafted and complete set of signed legal terms and conditions.
I’m an executive search consultant and not a financial advisor; feel free to take my advice with a pinch of salt but I have tried to keep it rather vanilla.
If your phone rings anytime soon with a blockbuster opportunity quoting every bitcoin, ICO and blockchain term under the sun, avoid the temptation to simply jump on the gravy train - do a little due diligence.
And if they tell you that "nobody ever got hurt jumping out of a basement window" you should probably run a country mile.