Tread carefully when investing in digital tokens

The consumer advisory on the potential risks of investment schemes involving digital tokens or currencies that has been issued by the Commercial Affairs Department and the Monetary Authority of Singapore is a timely one (Alert over digital-token investments; Aug 11).

Indeed, scams do exist in the initial coin offering (ICO) world. I have friends who lost thousands of dollars when their token trading accounts got hacked.

However, the rewards of investing in digital tokens are commensurate with the risks.

Take the digital tokens of Singapore-based company TenX, for instance. The price of each token has more than tripled since going on sale in June this year.

Nowadays, many cutting-edge technology companies prefer to raise money by offering digital tokens instead of the traditional stocks and shares.

I have found investing in digital tokens to be comparable to investing in stocks and shares. The same principles of sound money management apply, like not investing money that you cannot afford to lose and not putting all your eggs in one basket.

Those investing in digital tokens need to spend time and effort to research the company or product that is represented in the digital tokens.

Many good companies actively and regularly communicate with their investors through Facebook, Twitter or other forms of social media.

Consequently, the onus is on the investor to keep abreast of whether the company is on track with what it has promised to deliver in its investment prospectus (known as the white paper in the ICO world).

There is no free lunch. People who treat investing in digital tokens like putting money into a jackpot machine risk losing their shirts.

Chan Yeow Chuan

A version of this article appeared in the print edition of The Straits Times on August 14, 2017, with the headline 'Tread carefully when investing in digital tokens'. Print Edition | Subscribe