Four considerations before investing in virtual assets

According to the recent IFEC research, the incidence of investing in virtual assets has been on the rise, especially among the young generation which shows a stronger interest in this asset class. The research revealed that many virtual asset investors were looking for short-term returns and did not want to miss out on the opportunities. They tend to rely on mental shortcuts, which led them to select easily available information and overestimate their own investment acumen (See the press release dated 11 October 2023 for details). Investing is by no means a simple matter, particularly for high-risk products like virtual assets. Take note of the following points if you are interested in investing in virtual assets:

Investors should beware of the risks of unlicensed or overseas trading platforms. Unlicensed platforms may lack transparency and may not have well-established operations. Investors may not be protected at all. Should these platforms cease operations, or if there are incidences of fraud, breaches or theft, investors may suffer a complete loss of virtual assets held in these platforms. Some platforms may be licensed or registered with overseas regulators but there may not be sufficient investor protection measures. Separately, some platforms claim that they have submitted license application to the SFC. You should understand that any applicants who are not yet licensed by the SFC may not be compliant with the SFC’s requirements, and that their applications do not warrant approvals by the SFC. Therefore, investors interested in virtual assets should choose licensed platforms to protect their interest. You can refer to the SFC’s "List of licensed virtual asset trading platforms” which contains names and related information of licensed platforms.

Virtual assets are highly volatile and are associated with different risks. They generally do not have any intrinsic value and are not backed by any governments, banks, or physical assets. Virtual assets are high risk products and may not be suitable for everyone. Though under the new regulatory regime, retail investors can trade virtual assets on licensed platforms, it is not an endorsement or encouragement for retail investors to do so. While licensed platforms have to ensure product suitability to clients before offering their service, investors should also carefully consider their own risk tolerance, and have a full understanding of the product’s features and risks. If you do not truly understand virtual assets and are incapable of bearing the potential losses, it may be best to refrain from investing in this asset class.

Before investing in virtual assets, investors should understand their nature, operations, and risks. There are different kinds of virtual assets, and each has different features and risks. Nowadays, social media is flooded with virtual assets investment advice, analysis and news, as well as self-proclaimed experts, celebrities or influencers advertising or promoting virtual asset products or services. Investors should not follow the hype blindly, always do your own research, think independently and critically.

Scam cases involving virtual assets surged over the past few years, e.g. fraudulent trading app/trading platforms, romance scams (in which scammers use different excuses to ask for virtual assets after gaining trust from the victims). We should stay vigilant and pay special attention to investment opportunities promising high returns and low risks. Make use of the SFC’s list of suspicious-virtual-asset-trading-platforms which can help investors more easily identify suspicious VATPs doing business in Hong Kong.