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Crypto company DigitalX Ltd (ASX:DCC) smashed on ICO legal action

The DigitalX Ltd (ASX: DCC) share price has a tendency to rise and fall with the Bitcoin price due its exposure to the volatile market.

But while the prices of Bitcoin and its peers may be storming higher today, the same certainly cannot be said of the DigitalX share price.

At the time of writing the blockchain and ICO advisory company’s shares are down almost 12% to 8.3 cents. This latest decline means that its shares have now shed over 75% of their value this year.

Why are DigitalX’s shares being smashed today?

This morning DigitalX advised that it has been served with an Originating Application and Statement of Claim in the Federal Court of Australia.

This has been filed by a group of parties relating to an investment made by the parties in an initial coin offering to which the company was an advisor.

According to the release, the company and its legal advisors continue to review and examine the claims made but deny any claim of wrongdoing.

In addition to this, management believes that it has strong grounds to defend any claims bought forward by these applicants. As a result, the company intends to vigorously defend this matter and protect its reputation.

The claim is for a combined amount of approximately US$1,833,077 plus damages.

As DigitalX was appointed ICO advisor to projects that raised in excess of AU$500 million for domestic and international ICO projects during the last financial year, shareholders may be concerned that further legal action could occur in the future if some of these ICOs were unsuccessful.

Should you buy the dip?

The company had cash and digital assets totalling over $10 million at the end of FY 2018, which should more than cover the cost of this claim if the court were to rule against it.

However, I wouldn’t be in a rush to buy the dip. In fact, I’d suggest investors stay well clear of DigitalX and watch on from the safety of the sidelines instead.

Small cap tech shares such as Citadel Group Ltd (ASX: CGL) and Volpara Health Technologies Ltd (ASX: VHT) may be better options for investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended VOLPARA FPO NZ. The Motley Fool Australia owns shares of Citadel Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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