VA include digital representations of value which may be in the form of digital tokens (such as utility tokens, stablecoins or security – or asset-backed tokens) or any other virtual commodities, crypto assets or other assets of essentially the same nature. VA may be a means of payment, may confer a right to present or future earnings or enable the VA holder to access a product or service, or a combination of any of these functions. VA excludes digital representations of fiat currencies issued by central banks or government of jurisdiction. For details, please refer to VA as defined in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and subject to change from time to time.
Virtual Asset Futures Contracts (“VA futures contracts”) are typically instruments which allow investors to speculate on the prices of the underlying VA at a future date. These contracts are considered to be extremely risky as they are largely unregulated and highly leveraged.
VA-related products include investment products which: (a) have a principal investment objective or strategy to invest in VA; (b) derive their value principally from the value and characteristics of VA; or (c) track or replicate the investment results or returns which closely match or correspond to VA. VA spot exchange traded-funds and VA futures exchange traded funds are examples of VA-related products.
Investing in VA, VA futures contracts and VA-related products involves risks. VA are high risk investment. Trading in VA futures contracts and VA-related products is subject to the general risks associated with VA. These risks could result in substantial financial loss in transactions involving VA, VA futures contracts and VA-related products. In worst case scenario, you may lose your entire investment.
The general risks associated with VA, VA futures contracts and VA-related products could include, without limitation to, the following:
- Legal and Regulatory Risk
All VA transactions are potentially exposed to legal and regulatory risks. The legal and regulatory treatments of the VA vary and continue to evolve according to the jurisdiction and global regulatory development which are unsettled and may change rapidly. A VA may or may not be considered as “property” under the law, and such legal uncertainty may affect the verification of ownership of VA, the nature and enforceability of your interest in such VA.
The effect of regulatory and legal risks is that any VA may decrease in value or lose all of its value due to legal or regulatory change. Changes or uncertainty in the legal or regulatory framework, actions imposed by governmental or regulatory bodies relating to blockchain technology and/or VA may adversely impact the use, storage, transfer, exchange and value of the VA, returns on your investment or even render a previously accepted investment illegal. You should seek independent legal, tax and financial advice and continue to monitor the legal and regulatory position in respect of your investment in VA, VA futures contracts and VA-related products.
- Risk of Price Volatility
The prices of VA, VA futures contracts and VA-related products are subject to supply and demand and may fluctuate significantly within a short period of time. The volatile and unpredictable fluctuations in price may result in challenges in valuing such assets which may lead to significant losses. Such losses are especially magnified in VA futures contracts owing to the inherent leverage nature.
Any VA may decrease in value or lose all of its value in response to various factors including security concerns, discovery of wrongful conduct, market manipulation, change to the nature or properties of the VA, technological developments, governmental or regulatory activity, legislative changes, suspension or cessation of support for a VA or other exchanges or service providers, public opinions, or other factors outside of our control.
Psychological market risks may have a particular effect on VA and their prices may be adversely affected by global or local economic, political, environmental or other factors.
The VA futures contracts are generally model-based and the use of model does not guarantee positive performance and any unexpected changes in market could hurt the model's performance.
- Risk of Potential Price Manipulation
There may not be a robust regulatory framework to govern VA trading, lending and/or dealing platforms. The spot markets for VA (i.e. the underlying assets of VA futures contracts and VA-related products) are largely unregulated at present. They are more likely to present investor protection issues, ranging from a lack of pricing transparency to potential market manipulation which may contribute to false and misleading appearance of trading activities in or an artificial price for VA and VA futures contracts. You may suffer financial losses arising from buying or selling VA at a false price and/or halting trades or rolling back transactions of VA futures contracts.
- Risk of Lack of Secondary Market
There is the possibility for you to experience losses due to the inability to sell or convert assets into a preferred alternative asset immediately or in instances where conversion is possible but at a loss. Such liquidity risk in an asset may be caused by the absence of buyers, limited buy/sell activity or underdeveloped secondary markets.
The value of a particular VA may decline, or be completely and permanently lost should the market for that VA disappear. This is because the value of a VA may be derived, among other things, from the continued willingness of market participants to exchange fiat currencies for a VA. There is no assurance that a person who accepts a VA as payment, will continue to do so in the future.
- Risk of Unregulated Trading, Lending or Other Dealing Platforms and Custodians of VA
Service providers for VA , VA futures contracts and VA-related products, including custodians, fund administrators, trading platforms and index providers, may be unregulated, or regulated only for anti-money laundering and counter-financing of terrorism purposes or subject to light-touch regulation (e.g. for payment purposes). Thus, they may not be subject to the same robust regulation as service providers or products in traditional financial markets, posing additional counterparty risks for VA, VA futures contracts and VA-related products.
The offering documents or product information provided by the applicable issuer may not be subject to regulatory approval. You should exercise caution in respect of any issuance or offer of such assets.
For any VA, VA futures contracts and VA-related products that have been authorised by a regulator or traded on a platform authorised by a regulator, such authorisation does not imply any official recommendation or endorsement of the asset and/or platform by the regulator, nor does it guarantee the commercial merits of the asset and/or platform or its performance.
Some VA transactions may be deemed to be executed only when they are recorded and confirmed by an SFC-licensed platform, which may not necessarily be the time at which the client initiates the transaction.
The protection offered by the Investor Compensation Fund established under the SFO does not apply to transactions involving VA (irrespective of the nature of the tokens).
- Counterparty Risk
Effecting transactions with issuers, private buyers and sellers or through trading, lending or other dealing platforms (collectively, the “Counterparties”) is subject to counterparty risk. You should evaluate the comparative credit risk of the Counterparties and undertake appropriate due diligence before undertaking any transaction.
You should read the applicable terms, information and risk disclosures provided by the related VA , VA futures contracts or VA-related products issuer carefully before entering into a VA , VA futures contracts or VA-related product transaction. You should seek independent professional advice before making any investment decision.
- Risk of the Loss of VA
Investing in VA is subject to the risk of the loss of VA, especially if the VA is held in “hot wallet” or “hot storage”. A “hot wallet” or “hot storage” describes the practice where the private keys to VA are kept in an online environment. As “hot wallet” or “hot storage” is connected to the internet, it is more susceptible to cyber-attacks. Cyber-attacks resulting in the hacking of VA trading platforms and thefts of VA are common. Victims may have difficulty recovering losses from hackers or trading platforms. This could result in significant loss, loss of your entire investment, and/or other impacts that may materially affect your interests.
- Hacking and Technology-related Risks
- Cyber-attacks and fraudulent activity
VA , VA futures contracts and VA-related products’ technologic reliance exposes you to the risk of fraud or cyber-attack. VA , VA futures contracts or VA-related products may be targeted by hackers, individuals, malicious groups or organisations who may attempt to interfere with or steal the VA or fiat currency in various ways, including but not limited to interventions by way of distributed denial of service, sybil attacks, phishing, social engineering, hacking, smurfing, malware attacks, double spending, majority-mining, consensus-based or other mining attacks, misinformation campaigns, forks, and spoofing. Any successful attack presents a risk to the VA, and may result in theft or loss of the VA.
- Reliance on the internet and/or other technologies
VA , VA futures contracts and VA-related products are reliant on effective and reliable internet and/or other technologies. Either parts or the entire internet may be unreliable or unavailable at any given time, when such happens, interruption, transmission blackout, delayed transmission due to data volume, internet traffic, corruption or loss of data, loss of confidentiality and/or accuracy in the transmission of data, or the transmission of malware may occur when transmitting data via the internet and/or other technologies.
- Risk of Trading New Type of Asset
VA are relatively new and complex financial instruments, and generally a high-risk asset class. Market participants of VA may engage complex transaction strategies. They may or may not be securities. You should ensure that you have the knowledge and expertise to understand how the product is structured (which may differ from case to case), the applicable terms and conditions, and exercise caution in relation to the trading of VA, and VA themselves. VA are not legal tender. They may not be backed by physical assets, and are not backed or guaranteed by the government. They may not have intrinsic value. Some of the VA may not circulate freely or widely, and may not be listed or trading on any secondary markets or exchanges.
Transactions involving VA are irrevocable. Lost or stolen VA may be irretrievable. Once a transaction has been verified and recorded on a blockchain, loss or stolen VA generally will not be reversible.
The price of new type assets may fluctuate, sometimes dramatically. Their price may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling VA.
The Bank reserves the right to review and amend the above content. If there are any discrepancies on the above risk disclosures with other documents of the Bank, the above risk disclosures shall prevail.