Posted inRegulation

Singapore warns investors on virtual currency investments

As virtual currencies grow in value, Singapore’s Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) are warning investors about the risks of virtual currency-related investment schemes.

“Where sellers of digital tokens fail to highlight the risks, consumers should make the effort to find out more information about the underlying project, business or assets,” according to a joint statement from the authorities. 

The statement said there is a heightened risk of fraud if a firm operates online or outside Singapore. If the investment scheme collapses, it will be difficult to trace the scheme’s operators and the recovery of investments may also be subject to foreign laws or regulators, which may not be the same as Singapore’s.

Investors should also be wary of investment products that promise high returns. High returns could come in the form of high referral commissions, which may increase operating costs and could actually lower the chances of achieving returns.

“The higher the promised returns, the higher the risks,” the authorities warned.

Other risks include insufficient market liquidity and investing in a product that may have a hidden illegal purpose such as money laundering and terrorist financing. 

Investors should check if the operator is regulated by MAS by going to the financial institutions directory on the regulator’s website.

Rise of virtual currencies

The warning comes at a time when both the CAD and MAS have observed the emergence of initial coin offerings (ICOs) and other investment schemes involving digital tokens in Singapore. 

The market value of virtual currencies has recently exploded. For example, Bitcoin’s market value alone rose to $43bn this year from around $10bn last year, according to a report from Bank of America Merrill Lynch.

The soaring value has prompted global banks and firms to look at virtual currencies as investments.

In fact, Goldman Sachs analyst Robert Boroujerdi said that it will be hard for institutional investors to ignore virtual currencies, especially with a total market value of $120bn, with Bitcoin and Etherium rallying up to 200% and 2,500% this year, respectively, according to a Business Insider report.

In the US, Fidelity Investments’ research and development division, Fidelity Labs, has launched an experiment with digital wallet and digital asset exchange platform Coinbase. It enables Fidelity clients to view their Coinbase wallet accounts alongside their Fidelity portfolio, according to a statement from the firm.

“Just as many other technologies have done in the past, Bitcoin and blockchain will transform how we manage our finances,” Hadley Stern, senior vice president and managing director at Fidelity Labs, said in the statement.

The regulatory net

Regulators are also circling virtual currencies. In July, the US Securiities and Exchange Commission issued a statement warning that “virtual coins or tokens that are offered or sold may be securities. If they are securities, the offer and sale of these virtual coins or tokens in an ICO are subject to the federal securities laws.”

MAS clarified its regulatory position on the offer of digital tokens in Singapore in a prior statement.

“The issue of digital tokens in Singapore will be regulated by MAS if the digital tokens constitute products regulated under the Securities and Futures Act (SFA).”

For example, if the digital token represents ownership or a security interest in an issuer’s assets or property, such tokens are considered to be an offer of shares or units in a collective investment scheme under the SFA. Digital tokens may also represent the debt of an issuer and therefore qualify as a debenture under the SFA.

Part of the Mark Allen Group.