Risks arising from ICOs investments

Potential risks to which investors in crypto assets are exposed, have the following common features with financial instruments:

Lack of regulatory regime: the initial coin offering is neither explicitly regulated by the Public Offering of Securities Act (POSA), nor by the Markets in Financial Instruments Act (MFIA). Nonetheless, if the instruments offered through an ICO comply with the criteria for financial instrument, they should be encompassed either by POSA or by MFIA.

High market price volatility: currently the ICOs constitute an exclusively risky investment due to the crypto assets price instability.

Non-transparency: the information about market price is unofficial, not approved and fragmented. It is probable that the market price, i.e. the price at which an investor may sell or buy the respective asset, differs significantly from the asset price level made public at the various trading venues.

Investors’ interest could not be protected. Currently there is not any regulatory mechanism established on legislative level. The Investor Compensation Fund has not explicitly provided to pay out compensations to token investors according to the POSA prescriptions.

Potential fraud schemes: some token issuers might not have had any intention to utilize the provided means in the manner set up at the time of initial capital raising for the project purposes.

Lack of prospectus for public offering: In case of ICOs the issuer usually publishes a whitepaper through which it provides information, whereat it specifies its volume and content without being obliged to follow any legal rules.

Business risk: Usually projects for which capital has been raised stand at preliminary phase of development, so their business models are experimental. In this regard, it is not clear to what extent the project will be realized.