Hong Kong’s Securities and Futures Commission (SFC) has recently published a circular that warns investors to be extra careful when dealing with bitcoin futures and other cryptocurrency-related investment products, as trading in such products have potential great risks including illiquidity and high volatility.
Bitcoin future contracts that expire in January, which opened at around US$20,650 in its debut, declined to about US$14,950 as of December 29.
Interestingly, the warning by SFC came one day after the launch of bitcoin futures contracts, which allowed investors to bet on the price of the cryptocurrency in one, two or three months. The Chicago Mercantile Exchange has announced earlier this month that bitcoin futures would be introduced to the American market on December 10.
While trading in bitcoin futures are allowed in Hong Kong, only firms that have obtained a license from the SFC are permitted to offer such products, the regulator said in the circular, adding that trading in bitcoin is classified as a type 2 regulated activities under the Securities and Future Ordinance.
Bitcoin, probably the world’s best-known virtual currency, has seen its price shot up astronomically this year and largely outperformed other kinds of investments. While the digital token was initially stored and spent mainly on the internet, it was reported that it is now a lot more established and has become a more broadly accepted form of settlement.
In late November, PricewaterhouseCoopers has announced that it had accepted bitcoin as a payment for advisory services provided by the Hong Kong office for the first time.
It is also rumored that Amazon is preparing to begin accepting bitcoin, while a few business and hotels in the US, such as REEDS Jewelers and Golden Gates Hotel & Casino, have already began to accept bitcoin payments.
While the massive rise in value has attracted interest from investors, analysts and insiders are concerned many are not aware of what they are dealing with.
“It is almost like a ponzi scheme, and I see a lot of people are trading it for speculative purposes”, Reginald Chin, ESOP manager at Bank of China International told Harbour Times.
“In my opinion they are speculative derivatives with very little to back them up. This is in addition to the problems like long processing times and lack of regulation,” said Chin. “My advice is do not get involved in something you don’t understand.”
In fact, Bitcoin.com co-founder Emil Oldenburg has reportedly said last week that Bitcoin is “virtually useless” and “has no future as a tradable currency”. Based in Japan, Bitcoin.com is currently one of the largest bitcoin websites in the world.
“I would say an investment in Bitcoin is right now the riskiest investment you can make. There’s an extremely high risk”, Oldenburg said in an interview with Swedish tech site Breakit. “I have in fact sold all my bitcoins recently.”
James Lau, Secretary for Financial Services and the Treasury in Hong Kong, said during a radio program earlier this month that the attraction of virtual currencies lies in anonymous transactions, but it is exactly the anonymous nature that makes such trading easily swindled by criminals to raise funds illegally.