Investors who put their money in digital asset savings, staking, earnings, and deposit platforms risk losing all their money, the Hong Kong securities watchdog has warned.
In an advisory, the Securities and Futures Commission (SFC) noted that there has been a prevalence of these products in Hong Kong “despite previous investor warnings.” These platforms offer a high interest rate on deposits to lure investors. They may also offer staking services to investors. On their part, they make money by lending the customer deposits on other platforms or via decentralized lending protocols.
“Investors may suffer significant or even total loss, especially in the event of fraud or collapse of a VA (virtual asset) platform as evident in the recent fallout of a number of VA platforms,” the SFC warned.
The warning comes following the collapse of some of the world’s largest digital asset lenders. They include Celsius Network and Voyager Digital, which both filed for Chapter 11 bankruptcy, and most recently, BlockFi, whose ties to FTX were the last straw.
SFC reminded investors that despite the marketing hype, deposits with these digital asset lenders are not regulated in Hong Kong.
“Investors are not afforded with any form of protection,” the watchdog noted.
With most of the virtual asset platforms in Hong Kong being unregulated, the watchdog believes they lack transparency and may not be financially sound.
“VAs are exposed to heightened risks including insufficient liquidity, high price volatility, opaque pricing, potential market manipulation, hacking and fraud and may lose all value,” the watchdog added.
The warning comes on the heels of the city-state’s first-ever VASP (virtual asset service provider) licensing regime. As CoinGeek reported, Hong Kong lawmakers passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022, which finally brings digital asset companies under the same regulations governing traditional financial institutions.
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