MAS warns bitcoin investors to act with 'extreme caution'

Noting that the recent surge in the prices of cryptocurrencies is driven by speculation, MAS warned that cryptocurrencies are not legal tender and investors ''should be aware that they run the risk of losing all their capital''. PHOTO: BLOOMBERG

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 yesterday.

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 have been growing as its price has risen some 1,700 per cent since the start of the year to as high as US$19,666 (S$26,500) on Sunday.

"Bitcoin has no natural intrinsic value. Can you buy a house with it?" posed MAS' fintech chief Sopnendu Mohanty in a recent interview with British daily, The Telegraph. "Can you use it for daily interactions?"

Anxiety is mounting as mainstream exchanges launch bitcoin contracts, lending them an air of legitimacy. CME Group, the world's largest derivatives exchange operator, on Sunday became 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.

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.

It added: "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. Intermediaries could be shut down by law enforcement or hacked.

MAS 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."

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A version of this article appeared in the print edition of The Straits Times on December 20, 2017, with the headline MAS warns bitcoin investors to act with 'extreme caution'. Subscribe