Hong Kong Regulator Reminds Investors of Risks Associated With NFTs

Hong Kong Regulator Reminds Investors of Risks Associated With NFTs

Hong Kong’s securities regulator has warned investors to be wary of risks that are associated with non-fungible tokens (NFTs). The regulator also advised investors to consider investing in NFTs only if they fully understand the risks.

NFTs ‘Straddle the Line Between Collectibles and Financial Assets’

A Hong Kong regulator has said NFTs face risks that are associated with other virtual assets and investors should not invest in these assets if they do not fully understand such risks.

According to a report by Interface News, the Hong Kong Securities Regulatory Commission (HKSRC) said some of these risks include a lack of liquidity in the secondary market, volatile prices, a lack of transparency in the pricing of NFTs, and the risk of hacking.

The regulator’s warning comes after the HKSRC said it had observed that some NFTs have unique qualities. Explaining this, the report said: “some NFTs straddle the line between collectibles and financial assets, such as subdivision or homogeneity with structures similar to securities or, especially, interests under ‘collective investment schemes’ tokenized NFTs.”

The report went on to state that if an NFT is deemed to “constitute an interest under a collective investment scheme,” then any marketing or distribution of such may constitute a “regulated activity.” According to the regulator, any person carrying out any such regulated activity must be licensed.

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