What is an ICO?
An initial cryptocurrency or token offering, more commonly known as an “initial coin offering” (ICO), is a means of raising capital over the Internet and is generally used to finance a technology start-up. Instead of stocks listed on an exchange, investors are offered digital assets or “tokens” whose eventual value and usability are closely tied to the financed project’s success.
Watch the video to understand the risks of volatility and fraud surrounding initial coin offerings (ICO).
Who is an ICO for?
Watch the video to better understand initial coin offerings (ICO).
This type of investment is high risk and not suitable for everyone. Even if you consider yourself a sophisticated investor, make sure you have the necessary technical knowledge to thoroughly understand the project, the nature of the token, the underlying technology and the related risks.
Obtain reliable information about the issuer, its business plan and the project roadmap. Also ensure you know the risks associated with the ICO. And don’t invest unless you are prepared to lose your entire investment.
What are the risks?
- Lack of specific regulations – There are no specific regulations governing ICOs as a whole. Although some ICOs are regulated by the AMF, most originate abroad and are not regulated.
- Early stage projects – ICOs are typically used to finance projects that are in the very early stages of development and are based on experimental business models. The risk of losing all the capital invested is high.
- Inadequate documentation – The documentation provided may be biased, incomplete or misleading. Expert technical knowledge is generally required to properly understand the investment.
- Price volatility – The price of a token, like that of most cryptocurrencies, can be extremely volatile.
- Limited usability – Some tokens can only be used on a specific platform or for certain products or services. If the project fails, you might not be able to convert or cash out the tokens, which will essentially become useless.
- Potential for fraud – Due to their very nature, ICOs are fertile ground for fraud. Some issuers might use the funds raised for purposes other than those specified in the project presentation.
- Vulnerable platforms – Despite the lines of defence offered by new technologies, transaction platforms are not immune to bugs and hackers.
Are ICOs regulated by the AMF?
The AMF regulates ICOs that involve the sale of securities. In Québec, many ICOs are subject to the Securities Act This link will open in a new window, mainly because they are considered investment contracts.