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5 questions to ask before investing in blockchain businesses

While still something alternative or niche a decade ago, there is little doubt that investments in the blockchain and crypto space have seen remarkable growth in recent years. Among the multiple ways to invest in this fast-growing area, this article focuses on the route that potentially gives you more control or involvement in your investments – purchasing shares in companies where blockchain or digital assets is core to their business (we will call them ‘blockchain businesses’ in this article).

After doing your research on what these game-changing technologies mean and how they work, and having found an exciting blockchain investment opportunity, here are five legal questions to ask yourself before putting your signature on the dotted line.

Here are 5 questions to ask before investing in blockchain businesses:

1. What am I actually investing in?

With growing popularity in making blockchain investments, the way in which this can be done has also increased – from directly purchasing digital currencies or tokens (such as NFTs), to investing in digital asset-linked financial products (such as ETFs and trusts), and to buying shares in publicly listed or private companies that are dedicated to blockchain technology and digital assets. Each form of investments comes with its own unique set of legal considerations, so it is essential to understand the differences between them and their implications on your investment. Before buying shares in blockchain businesses, some questions you need to consider include: how much time and resources can you devote to doing due diligence on the business? How much knowledge and bargaining power do you have in conducting negotiations? What legal documentation will be required to complete the investments? What are my rights and liabilities in the event the investments have gone wrong? While it would appear prudent to proceed only if you responded with a reassuring “no” to the above questions it does not mean the end of your investment plan – speak to a legal expert at an early stage to see how they can help.

2. Has the blockchain company been authorised/registered?

3. How is the company regulated and how will it be regulated in the future?

4. Am I protected if the company goes out of business?

5. Should I get legal advice?

This blog was written by Grace Kung, Associate in our Corporate and Commercial team. If you are currently thinking of investing in a blockchain company, speak to Grace or a member of our team of blockchain and digital assets legal experts.


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