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News broke this month that more than 1,500 investors in Hong Kong have allegedly been defrauded by cryptocurrency platform JPEX, with the police rounding up eight people in connection with the investigations into alleged fraud by the platform operator. Trading from these individuals who filed complaints by the Hong Kong regulator totalled HK$1.2 billion of funds.
The arrests came after the Securities and Futures Commission of Hong Kong (SFC) said that JPEX was, in fact, unlicensed and did not have the authority to operate its cryptocurrency trading platform in Hong Kong. It also said that some investors had claimed they could not withdraw their virtual assets from JPEX accounts or found their balances “reduced and altered”. JPEX thereafter suspended trading on its platform.
One of those arrested includes Joseph Lam Chok, an active social media influencer. It was previously claimed that he was a partner of the platform.
In this article, we look at regulations behind crypto trading in Hong Kong, and discuss if cryptocurrency is for you.
Development of cryptocurrency regulations in Hong Kong?
Cryptocurrencies, such as Bitcoins, are digital assets that are encrypted and stored using distributed ledger technology like blockchain. Crypto transactions are verified peer-to-peer using a decentralised network of computers. This means all transactions are tracked accurately on a permanent ledger, providing for increased transparency.
In Hong Kong, the SFC has since June 1 been accepting applications for cryptocurrency exchanges, permitting licensed operators to deal with retail investors as long as they understood the risks involved. Previously, only professional investors could access such exchanges. As of late September, there are only two licensed platforms in Hong Kong.
Following the JPEX scandal, regulators said they plan to scrutinise the regulation of digital assets and ensure that retail investors are “sufficiently protected”.
Should you invest in cryptocurrency?
While the future of cryptocurrency seems promising, here are some issues you should consider before making your first crypto purchase.
Three key issues with cryptocurrencies
An asset, currency, security… or something else altogether?
There has been much debate surrounding the classification of cryptocurrencies, and consequently, the regulations surrounding crypto. A clearer outlook for crypto will be paved when clearer guidelines have been defined globally.
High volatility
Crypto has seen vast swings in prices over the years, more recently from heightened regulatory pressures or a tweet from Elon Musk. For example, crypto trading volume fell 43% in 2021 following China’s crackdown on the sector. If you are thinking of buying crypto, its high volatility is definitely something to consider before allocating your funds.
Negative environmental impact
The energy consumption of cryptocurrency mining has been cause for concern among environmentalists. As the price goes up, the algorithms to create new blocks on proof-of-work blockchains like Bitcoin become increasingly difficult, leading to greater energy consumption. While some purport that close to three quarters of Bitcoin’s energy needs come from renewable sources, these figures have been highly contested.
Three things to consider before investing in cryptocurrencies
As a digital wealth advisor committed to making it easier for you to build long-term wealth, consider these three things when deciding if you should invest in cryptocurrencies.
Risk appetite
Cryptocurrencies are high-risk investments, so it is important to assess your risk appetite. If you are generally risk-averse, crypto might not be for you. Besides, due to the high-risk nature of cryptocurrencies, please use regulated platforms for your investments.
Financial goals
Consider your financial goals, such as setting up an emergency fund, saving up for a family, or building your retirement nest egg. If you require short-term liquidity or are cash-tight, remain focused on achieving your financial goals first before making allocations to crypto.
Investment horizon and strategy for cryptocurrencies
If you have spare cash after taking the above financial goals into consideration and would like to start investing in crypto, decide your investment horizon and strategy for cryptocurrencies, such as buying and holding on to cryptocurrencies for the long-term or trading crypto aggressively in the short term.
Invest with a licensed and regulated platform
Different investors have different investment objectives and risk appetite. After evaluating the above three considerations, if you decide cryptocurrencies can form a part of your investment portfolio, it is important to do research and due diligence on the investment platform to ensure they are regulated and licensed.
Endowus HK is regulated and licensed by SFC, ensuring that the company assets and investors' assets are kept separate. Even in the unlikely event of a closure, investors' money remain unaffected. Therefore, when considering investments, investors should not only focus on the potential returns of the investment products but also prudently consider to their risk tolerance and confirm whether the platform is licensed and regulated by the relevant financial authorities. This way, you can maximise the security of your assets and invest with peace of mind.
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Risk Warnings
Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down.
This article is not intended to be relied upon as a forecast or research or investment advice, and should not form the basis of any investment or other decisions. The information contained herein is not intended, and should not be construed, as any legal, tax, regulatory, accounting or financial advice. If you would like investment, accounting, tax or legal advice, you should consult with your own professional advisors regarding your individual circumstances and needs.
The information in this article may not be suitable for all investors. You are responsible for any action that you take or decision that you make in reliance on any content in this article, and you agree that Endowus HK Limited (“Endowus”) is not liable under any circumstances.
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Neither the information, nor any opinion, contained in this article constitutes a recommendation, offer or solicitation by Endowus or its affiliates to you to buy or sell any securities, collective investment schemes or other financial instruments or services, nor shall any such security, collective investment scheme, or other financial instruments or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.
This is not intended to be an invitation or offer made to the public to subscribe for any financial product or to enter into any transaction.
Accuracy of Information
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Opinions
Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.
Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this article are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future.
In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.
This article has not been reviewed by the Securities and Futures Commission of Hong Kong.
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