The Risks You Are Exposed To When Trading In Cryptocurrencies And Their Derivatives

Key Takeaways

Cryptocurrencies and their derivatives are unregulated except for cryptocurrency derivatives, which are listed on Approved Exchanges licensed by MAS
If you trade in unregulated products, MAS is unable to help you if you face difficulties in recovering your assets such as cryptocurrencies and monies, or become a victim to unfair or manipulative practices

Cryptocurrencies, also known as Digital Payment Tokens (DPTs), are tokens which may be used to pay for certain goods and services.

Examples of such tokens include Bitcoin, Ether and Litecoin. These tokens are not legal tender.

MAS licenses companies that offer services to:

Change money into cryptocurrency;
Change cryptocurrency into money; or
Exchange one type of cryptocurrency for another, including providing trading services, brokerage services, operation of a market or platform that allows customers to trade with each other

These companies are licensed by MAS to address the risks of money laundering and financing of terrorism. They are not required to put in place measures to safeguard consumers’ money or cryptocurrencies.

MAS does not license or regulate Decentralised Finance (DeFi) applications which can be used by users to engage in activities involving cryptocurrencies such as trading, lending and borrowing, staking, and yield farming, without the need for an intermediary or service provider.

Therefore, if you trade in cryptocurrencies, you would not be protected by MAS’ regulations, even if the company you are dealing with is licensed by MAS. You are also not protected for activities on a DeFi application. You may not be able to recover any of the cryptocurrencies or monies that you deposited with the service provider/ DeFi application if

They are stolen or lost due to hacking of your account, misappropriation; or
The service provider/ DeFi application is going bankrupt; or
You encounter problems withdrawing funds from the DPT service providers/ DeFi application

In addition to these risks, DPTs are not suitable for retail investors because they have no intrinsic value and are subject to sharp price swings driven by speculation. There is also high risk of fraud or failure arising from DPT service providers' unsustainable business models and excessive risk taking.

Crypto derivatives are derivatives contracts such as futures, options, or Contracts For Differences (CFD), that reference cryptocurrencies as the underlying. These products may be offered by CFD brokers and DPT service providers or traded on DeFi applications.

Currently, MAS’ regulations on crypto derivatives only apply to those listed on the Singapore Approved Exchanges. Crypto derivatives traded on DeFi applications are not regulated.

If you trade in crypto derivatives that are not listed on Approved Exchanges, the money you deposited for trading in these derivatives is not protected by MAS’ regulations.

Should things go awry, you may not be able to recover your money, and you would not be protected by MAS’ regulations, even if the company you are dealing with is licensed by MAS.