The JPEX scandal, which is suspected to have ensnared at the very least 2,305 victims involving about HK$1.43 billion (US$182 million) of investments, has dealt a heavy blow to public trust in cryptocurrencies, casting a shadow over Hong Kong’s ambitions to turn out to be a worldwide virtual asset hub.
The implosion of JPEX, which might become the most important monetary fraud in the town’s historical past, has rung alarm bells amongst native retail traders, creating near-term challenges for virtual asset corporations banking on the federal government’s push to broaden the sector, in keeping with business gamers and analysts.
JPEX, established in 2021, has focused retail traders with massive commercials in the town’s enterprise and transport hubs, claiming to be a licensed cryptocurrency change and dangling yields as excessive as 20 per cent.
A chat group on the messaging app Telegram for individuals claiming to be JPEX victims has drawn greater than 12,600 sign-ups, after the cryptocurrency change suspended buying and selling on Monday and put in place excessive processing charges for fund withdrawals.
“I feel this scandal can have a reasonably sizeable unfavourable impression on retail sentiment, given its important native presence and the assorted celebrities concerned,” stated Carlton Lai, head of blockchain and cryptocurrency analysis at Daiwa Capital Markets.
That would imply “an additional layer of issue” to persuade retail traders to just accept digital belongings, and an elevated stage of resistance in direction of any Web3 efforts the federal government tries to push ahead, stated DreamWld’s Ip.
“I wouldn’t be stunned if the federal government slows down on the present Web3 push,” he added.
Hong Kong’s regulatory crackdown on JPEX represents one of many metropolis’s most high-profile regulation enforcement actions in the cryptocurrency sector.
Since then, police have arrested 11 individuals, together with JPEX staff and influencers suspected to be related to the corporate. Individually, native actor and singer Julian Cheung Chi-lam and Malaysian actress Jacquelin Ch’ng Se Min, each having appeared in JPEX publicity supplies, have been questioned by police on Thursday.
The Monetary Companies and the Treasury Bureau stated that related regulation enforcement businesses would “take resolute actions towards illegal actions no matter whether or not the corporate is a international or native entity”.
A extra cautious strategy towards cryptocurrency might weigh on the sector, which is already struggling in an prolonged bear market. Within the second quarter, buying and selling quantity on centralised cryptocurrency exchanges dropped to its lowest because the fourth quarter of 2019, in keeping with a report printed in June by statistics supplier CCData.
Lengthy-term prospects for the sector could also be rosier.
Latest enforcement actions on JPEX present that Hong Kong “actually is taking concrete steps in constructing an institutional digital asset economic system, with robust safety for retail traders”, stated Donald Day, chief working officer at VDX, a digital asset service supplier in Hong Kong specializing in the institutional market.
The authorized clampdown will “improve the trust” that the retail investing public can put in licensed and controlled buying and selling platforms, he stated.
Daiwa’s Lai stated that retail curiosity and confidence in cryptocurrencies “are likely to return over time, significantly when a bull market varieties”. Till then, the Hong Kong authorities would “have to do far more on educating the public about its new regulatory framework and the measures surrounding investor safety”, he stated.
The SFC has repeatedly warned the public to not commerce on unlicensed platforms after it first issued an alert about JPEX in July 2022. Nonetheless, the regulator has additionally stated it couldn’t disclose which corporations have utilized for a licence or have been denied one.
“I agree it is extremely troublesome for the SFC to inform individuals what they’ll or can not make investments in,” stated Kai Lung Hui, senior affiliate dean of enterprise and administration on the Hong Kong College of Science and Expertise. “Alternatively, I do assume extra info sharing and schooling may need helped traders navigate the cryptocurrency house.”
“When there’s quite a lot of uncertainty and ambiguity, extra info is at all times higher,” Hui stated.