What are the due diligence questions unique to cryptocurrencies?

The question of fulfilling a regulatory obligation of due diligence on a cryptocurrency (not to be confused with an equity) is a webinar unto itself, but it surely goes beyond having a whitepaper. A top 10 list for most firms would likely include:

  1. What is the depth and breadth of experience and reputation of the management team and development team associated with this product?
  2. What are the unique characteristics that may give this product a competitive advantage or create risks?
  3. What is the speed/time to clear a block?
  4. Is there a track record for this product/how long has the product existed and have there been any significant issues yet?
  5. If there is a track record, what is the level of acceptance (exchange volume, retailer acceptance, significant partnerships, etc.)?
  6. How is the code/platform as it relates to security and reliability?
  7. What are the analysts/experts saying?
  8. What are the non-analysts/non-experts saying (too much hype?)
  9. What is the level of scarcity in the design? Is it hard to mine, and what is the expense of mining compared to the market price?
  10. Is there any pending litigation/regulatory actions that would materially impact the product?

Once that information is obtained, then ask if you have enough clients that have the risk tolerance and resources to speculate in or diversify a portfolio with a cryptocurrency. Do you have the controls in place to make sure this product is only recommended to those type of clients? Does the firm understand the scenarios where the product will perform well and the ones where it could crater? Do you have a training program/product certification process to make sure that the reps engaging in this business have a full understanding of the products features, benefits, and risks? Can they explain it in a way that your clients will fully understand?

If you would like us to conduct another webinar on this topic, please let us know! Contact libby.hall@oysterllc.com or call (804) 965-5400.