MAS urges cryptocurrency investors to act with ‘extreme caution’

SINGAPORE — The Monetary Authority of Singapore (MAS) has warned the public against investing in cryptocurrencies such as Bitcoin, as it expresses concerns that people may be tempted to plough in their money due to the recent escalation in prices.

In a press release issued on Tuesday (Dec 19), the central bank advised individuals to "act with extreme caution and understand the significant risks they take on if they choose to invest in cryptocurrencies".

"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," it added.

A cryptocurrency is a form of digital token secured by cryptography and usually used as a medium of exchange, a unit of account or a store of value. Some cryptocurrencies include Bitcoin, Ethereum and Litecoin.

Interest in cryptocurrencies has exploded this year, fuelled by developments including announcements by CME Group on the introduction of Bitcoin futures, and members of the European parliament agreeing that cryptocurrency is here to stay.

Correspondingly, the price of a Bitcoin has surged to all-time highs. It has neared US$20,000 (S$26,943) in recent days, after starting the year at under US$1,000. As at 7pm on Tuesday, the price of a Bitcoin was about S$24,810.

Other popular cryptocurrencies such as Ethereum, Litecoin, Monero and Ripple have also seen their prices go up. Ethereum, which was valued at more than US$350 a unit late last month, is currently priced above US$830.

The total value of the cryptocurrency market hit a record of US$600 billion at the start of this week. In comparison, it was merely worth US$17 billion in January.

Attesting to the keen interest among potential investors, cryptocurrency investor Titan Lee, 30, said he had recently posted on his Facebook about his intention of selling some of his cryptocurrencies.

"I was approached by many friends. As I am an early adopter, I'm taking a profit right now," he said. He declined to say how much he has invested in cryptocurrencies in total, but he admitted that he has put in more money there than in his bank account. He agreed that the price trend was unsustainable. "We've been moving upwards at such a high rate, anyone buying in now will be very nervous," he added.

MAS' warning also came after its financial technology (Fintech) chief Sopnendu Mohanty pointed out in a recent interview with the Daily Telegraph 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.

Reminding that cryptocurrencies are not legal tender, MAS stressed that they are not issued by any government and are not backed by any asset or issuer.

The central bank stressed 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," the authority said. Cryptocurrency investors who lose money will not be able to rely on any protection afforded under legislation administered by MAS.

MAS said that before investing in cryptocurrencies, individuals 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, MAS reiterated.

It noted that since most operators of cryptocurrency trading platforms 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," MAS said.

Moreover, 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," MAS cautioned. "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 – which is based in Tokyo – lost 850,000 Bitcoins which were then valued at more than US$450 million. The loss was blamed on hackers.

On Tuesday, a South Korean exchange – which traded Bitcoin and other virtual currencies - declared bankrupt after it was hacked for the second time this year. Youbit exchange said it had lost 17 per cent of its assets in the attack.

In April, the exchange lost nearly 4,000 Bitcoins – then valued at 5.5 billion won – in a cyber-attack which was blamed on North Korea.

MAS also urged individuals to report to the police if they suspect that an investment involving cryptocurrencies could be fraudulent or misused for other unlawful activities.