SINGAPORE - As bitcoin continues its gravity-less bounce, the Monetary Authority of Singapore (MAS) has issued a strong warning to would-be investors to act with "extreme caution" and understand the significant risks of choosing to invest in cryptocurrencies.
"MAS is concerned that members of the public may be attracted to invest in cryptocurrencies, such as bitcoin, due to the recent escalation in their prices," it said in an advisory issued Tuesday (Dec 19).
Cryptocurrencies are not legal tender, warned MAS.
"They are not issued by any government and are not backed by any asset or issuer," it said, noting that the recent surge in the prices of cryptocurrencies is 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."
Worries about a bitcoin bubble has been growing as its price has risen some 1,700 per cent since the start of 2017 to as high as US$19,666 (S$26,480) on Sunday.
"Bitcoin has no natural intrinsic value. Can you buy a house with it?" posed Sopnendu Mohanty, MAS' fintech chief in an interview with British daily The Telegraph on Monday.
"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.
Anxiety is mounting as mainstream exchanges launch bitcoin contracts, lending them an air of legitimacy.
CME Group Inc, the world's largest derivatives exchange operator, became on Sunday the second exchange to launch bitcoin futures trading, seeking to capitalise on the mania for the booming digital currency.
CME's move followed that of Chicago-based derivatives exchange Cboe Global Markets, which launched bitcoin futures on Dec 10.
But exchanges can also be dicey.
South Korea's spy agency said North Korean hackers were behind attacks on cryptocurrency exchanges this year in which some 7.6 billion won (S$9.43 million) worth of cryptocurrencies were stolen.
A South Korean cryptocurrency exchange - Youbit - is to file for bankruptcy after it was hacked for the second time this year.
Part of the problem is that there is no regulatory safeguard for investments in cryptocurrencies, said MAS. "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."
As most operators of platforms on which cryptocurrencies are traded do not have a presence in Singapore, it would be difficult to verify their authenticity or credibility, said MAS. "There is greater risk of fraud when investors deal with entities whose backgrounds and operations cannot be easily verified."
Cryptocurrency transactions are generally anonymous, which makes them vulnerable to being misused for unlawful activities, it said.
"If a cryptocurrency intermediary is found to have used cryptocurrencies illegally, its operations could be shut down by law enforcement agencies. There is also a risk of loss should the cryptocurrency intermediary be hacked, as it may not have sufficiently robust security features."
Warning that investors could be left high and dry, it said: "Members of the public who lose money from investing in cryptocurrencies will not be able to rely on any protection afforded under legislation administered by MAS."
MAS has been a global champion in fintech innovation and development.
On Nov 14, MAS published its list of guidelines for ICOs or initial coin offerings, outlining case studies for which digital tokens will be considered securities.
Its multi-phase Project Ubin in partnership with banks has been exploring blockchain technology and its applications.
Last month it released a report showing how blockchain technology can improve the payment systems that now enable banks around the world to transfer trillions of dollars a day to each other and help them manage their financial liquidity.
Correction note: An earlier version of this article stated that MAS published its list of guidelines for initial coin offerings last week. MAS has since clarified that it was published on Nov 14. The article above has been revised to reflect this.
