Singapore: Significant risks in cryptocurrencies investment - Regulator

| 20 Dec 2017

Many of your prospects and clients must have consulted you about investments into cryptocurrencies. Here's what the Monetary Authority of Singapore and its Fintech Chief have to say.

MAS advises the public to act with extreme caution and understand the significant risks they take on if they choose to invest in cryptocurrencies. MAS is concerned that members of the public may be attracted to invest in cryptocurrencies, such as Bitcoin, due to the recent escalation in their prices.

MAS considers the recent surge in the prices of cryptocurrencies to be driven by speculation. The risk of a sharp reduction in prices is high. Investors in cryptocurrencies should be aware that they run the risk of losing all their capital.

In a recent interview with the Daily Telegraph, MAS’ Financial Technology (Fintech) Chief Sopnendu Mohanty also pointed that Bitcoin has “no natural intrinsic value”.  "Can you buy a house with it? Can you use it for daily interactions? It may be valued at US$18,000 right now but what I want to know is how you convert it into fiat currency and realise that value. The risk comes at the moment of conversion," he said.

No regulatory safeguard

MAS reminds the public that cryptocurrencies are not legal tender. They are not issued by any government and are not backed by any asset or issuer.

There is no regulatory safeguard for investments in cryptocurrencies. As in most jurisdictions, MAS does not regulate cryptocurrencies. Nor do MAS regulations extend to the safety and soundness of cryptocurrency intermediaries or the proper processing of cryptocurrency transactions.

As most operators of platforms on which cryptocurrencies are traded do not have a presence in Singapore, it would be difficult to verify their authenticity or credibility. There is greater risk of fraud when investors deal with entities whose backgrounds and operations cannot be easily verified.

Cryptocurrency transactions are generally anonymous, which makes them vulnerable to being misused for unlawful activities. If a cryptocurrency intermediary is found to have used cryptocurrencies illegally, its operations could be shut down by law enforcement agencies. There is also a risk of loss should the cryptocurrency intermediary be hacked, as it may not have sufficiently robust security features. For example, in February 2014, Bitcoin exchange Mt. Gox lost 850,000 Bitcoins (valued at more than US$450 million at the time) which Mt. Gox had blamed on hackers.

Members of the public who lose money from investing in cryptocurrencies will not be able to rely on any protection afforded under legislation administered by MAS. Before investing in cryptocurrencies, members of the public should carefully consider the claims being made about the products being offered – if the touted ease of making significant profits sounds too good to be true, it probably is. Investors should carefully assess whether an investment in cryptocurrencies is suitable for their investment objectives and risk appetite.

In South Korea, the government has also sounded warning on the Bitcoin boom. The frenzy is luring not just seasoned investors, but ordinary people with little prior experience in virtual currencies, with its soaring price.

Asia Advisers Network puts you in the know. Connect with us on Facebook and subscribe to our weekly newsletter here.