It has been a month since the JPEX scandal in Hong Kong broke out.
Since then, more than 20 individuals have been arrested, including some prominent local artistes.
Additionally, the Hong Kong Police have seized over HK$1.5 billion in assets, in one of the largest fraud investigations the city state has seen.
At least 2500 victims have been reported thus far, and the Hong Kong Securities and Futures Commission has responded to the scandal by publishing a list of virtual asset trading platforms applying for an operating licence.
The outbreak of such a huge scandal is certainly not great for any country- let alone one that is aspiring to become a blockchain hub of the world.
And it’s not just Hong Kong’s reputation that has suffered since the scandal- according to a survey by the Hong Kong University of Science and Technology’s business school, public attitudes towards crypto have taken a significant hit since the scandal. Around 41 per cent of survey respondents expressed that they would prefer not to hold virtual assets, up 12 percentage points from a study conducted in May.
Only 20 per cent of respondents now want to hold virtual assets in the future, down five percentage points from an earlier survey.
The reason why JPEX was able to defraud so many victims was because of the relatively lax regulations that Hong Kong has on crypto businesses.
Influencers were engaged to actively promote the exchange, and no one noticed that the claims about JPEX’s licencing status were false. At least, not until it was too late.
Would something similar have happened in, let’s say, Singapore? Probably not. Advertising targeted at retail investors for crypto products are banned, and the Monetary Authority of Singapore (MAS) has an investor alert list of persons or entities who may have claimed to be acting as licensed entities.
Singaporeans would at the very least have access to a list of companies or individuals where they can refer to if and when they suspect something is wrong.
Additionally, a blanket ban on cryptocurrency service advertisements targeted at retail investors would mean that any unlicensed operation would not be able to obtain a large customer base before being detected, and harm would be minimised.
Events like the collapse of FTX or Luna would still affect citizens, but widespread catastrophes like these can be avoided.
Despite the lack of regulation, it is also undeniable that part of the reason why so many Hong Kongers fell for the JPEX scam was because many Hong Kongers themselves are unclear on what regulations are in place.
A survey conducted by Hong Kong’s Investor and Financial Education Council found that only around 47 per cent of retail crypto investors are familiar with the new regulatory measures that were passed in Hong Kong.
This is an appallingly low number- these are not merely random members of the public, but people who have already invested in cryptocurrency. This means that more than half of those who have already invested in cryptocurrencies do not actually know what crypto companies are licensed or what they are allowed to do.
Evidently, Hong Kong has significant ambitions to become a global crypto hub. But, for now, it seems that there is a long way to go before Hong Kong is ready to fulfil those ambitions.
The story of the crypto industry in Hong Kong should act as a cautionary tale for regulators and governments everywhere on the risks of embracing crypto before one is ready.