Be wary of digital token investments: Police, MAS

Be wary of digital token investments: Police, MAS
Reuters file photo
Published: 4:00 AM, August 11, 2017
Updated: 5:32 AM, August 11, 2017

SINGAPORE — Consumers should be wary of investments associated with virtual currency such as Bitcoin or digital tokens, warned the Commercial Affairs Department (CAD) of the Singapore Police Force and the Monetary Authority of Singapore (MAS) in a joint advisory that was issued yesterday.

In the advisory, they referred to the rising emergence of initial coin or token offerings (ICOs) here to raise funds. The investment schemes have been likened to Initial Public Offerings (IPO) which give investors stakes in the company in return for virtual currency or cash.

The advisory said: “Members of the public are advised to exercise due diligence to understand the risks associated with ICOs and investment schemes involving digital tokens.” An example of a digital token is virtual currency.

While virtual currencies such as Bitcoin and Ether have been in use for some time, with individuals buying these currency for investment or businesses accepting these in lieu of traditional money, their role has evolved, noted the advisory.

For instance, digital tokens have been marketed as investment opportunities to invest in property, businesses or other assets, with promises of monetary returns or other benefits.

“Consumers should make it a point to understand the product. 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,” advised the CAD and MAS.

Consumers might be exposed to risk of fraud, money laundering and terrorist financing, they cautioned. Risk of fraud is heightened especially when the company is operating outside of Singapore, making it hard to trace if schemes collapse, or difficult to verify the authenticity.

Last week, MAS issued a clarification that ICOs would be subject to regulation if digital tokens are structured like products in investment schemes regulated under the Securities and Futures Act.

Analysts warned consumers to steer clear of investments they do not understand, while investors here are wary of such schemes, for now.

“Cryptocurrency and token sales are very complex products that are not suitable for those who are not willing to spend the time to learn about the technology and business models,” said Professor David Lee from the School of Business, Singapore University of Social Sciences, adding that consumers run the risk of capital disappearing, overvaluation of token sales, as well as falling victim to scams.

Seasoned investor Alvin Leong, 35, who invests in Bitcoin, agreed there are risks to investing in virtual currency.

“There is no regulation at all to protect investors, and you do not know what they are promising. For IPOs, companies go through a lot to prepare for it, but ICOs seem too easy,” he said.

“As ‘shareholders’, we might also get into trouble if the company is involved in illicit activities,” he elaborated.