Don't rush into investments linked to virtual currencies

Since January 2016, the Consumers Association of Singapore (Case) has received five complaints over digital currencies, such as bitcoin.
Since January 2016, the Consumers Association of Singapore (Case) has received five complaints over digital currencies, such as bitcoin. PHOTO: REUTERS

Understand the potential risks of complex products before jumping in, warn experts and the authorities

In recent years, virtual currencies such as bitcoins - and the huge gains these digital tokens have achieved - have made headlines globally. They started as virtual currencies but some have evolved to involve investment schemes.

Before you rush in, you should heed the advice of financial experts and the authorities who are urging investors to understand the potential risks of these complex products.

On Thursday, the Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) warned retail investors not to throw caution to the wind when dealing with such investment schemes. They noted the emergence of initial coin (or token) offerings (ICOs), and other investment schemes involving digital tokens here. Some recent ICOs were TenX in June and Cross Coin last month.

Since 2015, a little over 100 police reports have been filed here involving five such investment schemes. And since January last year, the Consumers Association of Singapore (Case) has received five complaints over digital currencies, such as bitcoin. The complaints focused on the lack of payouts after investing or unsatisfactory services.

The consumer advisory follows a recent clarification from MAS on its regulatory stance on digital tokens. MAS had said that the current securities regulatory framework requires that any offering of shares, debt instruments, or units in a collective scheme will have to comply with prospectus requirements, or exemption requirements (if any are applicable).

The statement "was a strong reminder, to clarify to the market that transactions falling within one of the above categories would be regulated. This is to ensure that the market understands that just because there's a cryptocurrency, digital token or blockchain element, it does not exempt it from regulations", said TSMP Law Corporation joint managing partner Stefanie Yuen Thio.

Singapore University of Social Sciences (SUSS) Professor David Lee said he has invested in digital tokens not to get good returns, but to learn and be involved in the digital token community. He declined to disclose the sum he had invested.

"I enjoy the inclusive nature of the community and the potential of blockchain... The invested amount will not prevent me from sleeping. If returns come, then (it shows) you are good at identifying what technology will scale and which will benefit mankind and be very valuable," he said.

Simply put, a blockchain is a way to maintain a database without a central authority.

  • Do you know....


    A A virtual currency typically functions as a medium of exchange, a unit of account or a store of value. It may be used as a means to pay for goods or services.

    Virtual currencies first emerged about 10 years ago and do not necessarily have a physical form, unlike coins or notes. Examples of virtual currencies are bitcoin and ethereum's ether.

    They are not issued by any government, and are not legal tender. This means that you may only use them to pay for goods or services if you are dealing with someone who is willing to accept them as a mode of payment. Typically, payments with virtual currencies are made online.

    Mr Sachin Mittal of DBS Group Research said that if you wish to invest in digital currency, open a digital currency wallet either through a wallet service or a cryptocurrency exchange. In Singapore, exchanges are required by the Monetary Authority of Singapore to verify the identity of the investors. Some of the prominent wallet and exchange services here include CoinHako, Coinbase, Luno and ItBit.


    A Users of a virtual currency transact directly with each other, and each transaction is typically recorded in a blockchain for that virtual currency. Users of a virtual currency usually maintain anonymity with respect to their transactions entered into the blockchain which may be publicly available.


    A A digital token is an electronic representation of a token-holder's rights to receive a benefit or perform specified functions. One particular type of digital token is a virtual currency.

    However, the function of digital tokens has evolved beyond a virtual currency. For example, they may represent ownership or a security interest over the token-seller's assets or property, or a debt owed by the seller. Such digital tokens have been marketed as investment opportunities.


    A Digital tokens may be offered through an initial coin offering (ICO) or other investment schemes. Those offered through an ICO are usually specific to the seller, and such tokens are typically sold to consumers in exchange for a widely used virtual currency or cash. These sellers often set out their business proposal in a so-called "white paper" published online.

    ICOs and other investment schemes may be structured in many ways with different business propositions. For example, they may seek to develop a new digital platform, offer an opportunity to invest in a property, business and assets, or promise certain benefits or monetary returns.

According to financial research provider Autonomous Research, more than US$1.2 billion (S$1.6 billion) in cryptocurrency was raised through ICOs in the first half of this year around the world.

Besides hoping for high returns through appreciating token prices, advocates of digital tokens see the new technology as an enabler of the growth of community projects, particularly in areas where financial services infrastructure is lacking. Others like the transparency and liquidity opportunities.

Potential pitfalls

Like any investment product, it is prudent to understand it first. When 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. Look out for these eight risks.


The CAD and MAS warned that you are exposed to heightened risk of fraud when investing in schemes that operate online or outside Singapore as it would be difficult to verify their authenticity.

Should the scheme collapse, it would be difficult to trace the scheme's operators. The recovery of invested monies may also be subject to foreign laws or regulations, which may not be the same as Singapore's.

Mr Low Kah Keong, a partner at WongPartnership, said: "It will be difficult to get an effective legal remedy if an issuer breaches its promises but has no substantive assets in Singapore to compensate an investor who obtained a court judgment."


Sellers of digital tokens may not have a proven track record, making it hard for one to establish their credibility. As with all start-ups, the failure rate tends to be high.


Even if digital tokens are tradable in a secondary market, in practice, there may not be enough active buyers and sellers or the bid-ask spreads may be too wide. This means you may not be able to exit your token investments easily.

In the worst-case scenario where no secondary market develops, you may not be able to liquidate your token holdings at all. The exchanges or platforms that facilitate secondary trading of digital tokens may not be regulated by MAS.


The valuation of digital tokens is usually not transparent, and is highly speculative. Transparency could be limited as there might be little publicly available information that could help you gauge the fair value of the virtual currency.

This could lead to speculative forces driving up unit prices resulting in volatile price swings.

Where digital tokens do not hold any ownership rights to the seller's assets, the digital tokens would not be backed by any tangible asset. Such tokens would be merely speculative investments and their traded price can fluctuate greatly within a short period of time.

There is a high risk that you could lose a portion or your entire investment amount. In the worst-case scenario, the digital tokens could be rendered worthless.


The platforms or persons you deal with may not have taken enough security precautions and this could lead to theft through hacking.

For example, in the case of bitcoin exchange Mt Gox, 850,000 bitcoins were stolen in February 2014 (valued at more than US$450 million at the time), leading to its subsequent bankruptcy and closure.


Fraud has also occurred in relation to companies that claim to offer virtual currency payment platforms and other virtual currency-related products and services.

For example, in December 2015, the United States Securities and Exchange Commission charged two bitcoin mining companies with conducting a Ponzi scheme.


Be wary of investment schemes involving digital tokens that promise high returns. The higher the promised returns, the higher the risks.

High returns could come in the form of high referral commissions, that is, promising consumers benefits for referring additional participants. In fact, such commissions would increase operating costs, which could lower the chances of achieving the returns.


Funds invested in investment schemes involving digital tokens are prone to being misused for illegal activities due to the anonymity of transactions, and the ease with which large sums of monies may be raised in a short period of time.

As such, you would be adversely affected if law enforcement agencies investigate any alleged illicit activities related to the token investment scheme you have invested in.

Consumer checklist

Financial experts say it is worthwhile putting in the time to educate ourselves on initial coin (or token) offerings (ICOs) and other investment schemes involving digital tokens. After all, digital is the future - but that does not mean that every digital currency-related investment will make money. Nor is it a suitable asset class for everyone.

TSMP Law Corp's joint managing partner, Ms Stefanie Yuen Thio, advised consumers not to be seduced by sexy terms like "cryptocurrency", "ethereum" or "bitcoin" and think that this is a sure-win money-spinner. "Unless you know the arrangers of the transaction to be reputable and regulated, which can be verified against the Monetary Authority of Singapore (MAS) website, investors should proceed with extreme care," she said.

"A white paper does not provide the same degree of information as a prospectus. We shouldn't let the new nomenclature make us believe that an ICO has the same protection as an initial public offering."

Ms Chung Shaw Bee, head of deposits and wealth management, Singapore and the region, at UOB, cautioned there are a number of uncertainties that could confuse prospective investors. These include the technology which is the medium of the exchange of value, the real value of the virtual currency and the real value of the underlying assets. "The technology of and behind the virtual currency does not necessarily guarantee the substance, quality or even existence of the investment's underlying assets. Neither does it provide for certainty of returns," she said.

Mr Nizam Ismail, head of regulatory practice, RHTLaw Taylor Wessing, said that if the coins offer some form of securities (for example, with rights similar to that of shares and bonds) or collective investment schemes, the issuer has to have a prospectus lodged with MAS. "If there is no prospectus, then the offer of securities may be an illegal one and could give rise to a criminal offence. If the coins do not offer securities, it would still be prudent for an investor to find out from the white paper, or from their own due diligence, how the company intends to use the proceeds from the ICO," he said.

For those already invested in such schemes, Mr Anson Zeall, chairman of local trade body Access, suggests asking whether the coins issued to you are securities, that is, they give you rights similar to shares (ownership in a company), or debt (promise of return of coupon/interest), or a collective investment scheme. "If they do, the issuer should be regulated and cannot issue coins without a prospectus lodged with MAS. If you suspect that these are securities and there has been no prospectus, you should obtain legal advice or contact MAS," he said. Access represents the Singapore Cryptocurrency and Blockchain Industry Association.


If there is no prospectus, then the offer of securities may be an illegal one and could give rise to a criminal offence.

MR NIZAM ISMAIL, head of regulatory practice, RHTLaw Taylor Wessing.

Mr Low Kah Keong, a partner at WongPartnership, recommends that an investor also consult his legal adviser to find out available remedies, including the right to cancel the agreement.

The Sunday Times compiles a checklist from financial experts:

• Do you understand what business the ICO issuer is doing?

• Does the firm have a website that sets out what it does?

• Does the ICO issuer have a legitimate business presence in Singapore, or is planning to have one? Any track record?

• Be aware that if it is a foreign firm, there may be practical legal difficulties in suing the firm or enforcing judgment.

• Who are the persons running the company, the shareholders and what is their track record?

• How is the issuer planning to use the proceeds of the ICO and has it set out its projected financials?

• What sort of rights you are entitled to as the holder of a coin?

• Has the issuer disclosed risks relating to the ICO and are you able to accept those risks?

• What is your investment risk appetite? Coin or token investments carry risks and may be more volatile than other investment products. Are you prepared to write off the coin investment substantially or completely?

• Do the coins give you rights similar to shares (ownership in a company) or debt (promise of return of coupon/interest) or a collective investment scheme? If they do, the issuer should be regulated and cannot issue coins without a prospectus lodged with MAS, said Mr Nizam.

• Do you understand how to exit from your coin investments?

• Are the coins going to be listed on an exchange to allow you the ability to convert the digital tokens into cash?

• Is the person or entity regulated by MAS?

The laws administered by MAS require disclosure of information on investment products being offered to consumers. They are also subject to conduct rules aiming to ensure they deal fairly with consumers.

To find out whether an entity is regulated by MAS, consumers can check the authority's Financial Institutions Directory on the MAS website. Consumers can also look up the MAS' Investor Alert List for a non-exhaustive list of entities that may have been wrongly perceived to be regulated by MAS. Consumer alerts on the MoneySense website also has tips on avoiding scams.

Consumers who suspect an investment scheme involving digital tokens could be fraudulent should report such cases to the police.

A version of this article appeared in the print edition of The Sunday Times on August 13, 2017, with the headline 'Don't rush into investments linked to virtual currencies'. Print Edition | Subscribe