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Bitcoin the next fraud frontier

Dec 14, 2017

There is a surge in the hype in relation to bitcoin levels of public interest, exaggeration of price, and media reports of bitcoin millionaires and rising bitcoin prices make a situation which will attract the uneducated investor who doesn’t really understand what bitcoin is.

In reality, bitcoin is worth what people want to buy or sell the cyber-currency for.  From January 2017, the value of a bitcoin has grown from USD1,000 to over USD16,000.

The unsophisticated investor has already suffered by being lured in to joining scam exchanges which have been set up to simply steal credit card details.

The complexity of bitcoin is what will attract fraudsters, who will target investors who are not computer savvy and need third parties to assist them to purchase bitcoins or related cryptocurrency.

Some commentators have stated that bitcoins are simply, “a fraud” or “a collective delusion”, but the fact is that bitcoins are real and will be used as a vehicle for fraud by those who prey upon the vulnerable.

11 December 2017, witnessed the commencement of futures trading in Chicago, USA not in the bitcoin cryptocurrency itself but in securities to trade the price of bitcoin based on the Gemini bitcoin exchange in the USA.

The SFC has recently published a circular
to remind interested parties of legal and regulatory requirements that apply to Hong Kong investors intending to invest in bitcoin futures contracts.  The same circular also raises a warning to investors regarding the dangers of investing in unregulated cryptocurrency exchanges, which may be illegal under Hong Kong law.  Dangers include hacking risks, exposure to insufficient liquidating, high price volatility, and potential market manipulation.

Whether bitcoin facilitates money laundering and illicit anonymous payments or is a helpful method of payment in a crisis situation when currency is volatile or collapsed is and will remain a matter of intensive debate.  At present it is hard to tell the difference between a failed initial coin offerings (“ICOs”) and a deliberate scam.  So, the buyer should be extremely cautious.  The SFC, in particular, have already issued a statement regarding ICOs (

The following is a certainty:-

  1. Hackers have and will find new methods to steal bitcoins
  2. Websites who offer wallet services will be vulnerable to hacker attack and theft unless bitcoins are in client-side web wallets which are heavily encrypted.
  3. Websites will target bitcoin owners with Ponzi schemes promising high returns.

Everyone wants to jump on the bandwagon to make fast and easy money.  But remember because of the above the wheels can easily and quickly fall off.

If you have been defraud, contact our Criminal Department who can assist in quickly and effectively reporting the fraud and/or taking the immediate steps to try to recover the proceeds which have been taken.  In this regard, please contact our Partner Mr. Kevin Steel on 2861 8419.


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