What to watch out for before investing in crypto-assets
The Czech National Bank hereby draws attention to the risks associated with investing in crypto-assets offered to the public on the basis of white papers under the Markets in Crypto-Assets Regulation (MiCA). What should you watch out for?
Take time to read the white paper – the document that contains detailed information about the crypto-asset. Bear in mind that different rules apply to different types of crypto-assets, and the extent to which the Czech National Bank reviews the white paper varies depending on the type.
Don’t overestimate the legally defined role of the CNB. For most crypto-assets, the CNB neither reviews nor approves the white paper. It doesn’t assess the economics of the project and so doesn’t guarantee any return on your investment. Don’t let anyone convince you otherwise.
Find out as much as you can about the offeror and assess whether they are trustworthy. Check what services they actually provide and think ahead about how you could assert your rights if needed.
Pay particular attention to how the crypto-asset works, what rights are attached to it, and how the money raised by selling it will be used. Remember that the information in the white paper is provided solely by its author and may be incomplete, biased, misleading or even false.
After carefully reading the white paper, consider all the risks involved. Misjudging them could mean losing your entire investment. Don’t rely solely on the risks listed in the white paper – form your own judgement, ideally using other sources too.
Think about whether you have enough experience for this kind of investment. If you don’t understand the information in the white paper, the investment probably isn’t right for you.
Don’t fall for unrealistic promises of high returns. Critically assess whether the proposed revenue-generation model is realistic and whether the returns match the risk. If you can’t judge the level of risk based on the available information, take that as a warning sign.
Consider the liquidity of the crypto-asset. Find out whether – and under what conditions – you will be able to sell the crypto-asset. Crypto-assets that have no trading platform or low trading volumes may be effectively impossible to sell.
Don’t succumb to pressure or advertising on social media. An influencer or advert is no guarantee of trustworthiness. Remember that advice from influencers, anonymous individuals or self-proclaimed experts may be misleading, incomplete or driven by personal gain. See also the CNB’s Notice for investors that follow finfluencers (in Czech only).
Keep your wallet access credentials safe. If they’re lost or stolen, you could lose your crypto-assets – and your entire investment – for good.