According to SFC,
“As with other virtual assets, NFTs are exposed to heightened risks, including illiquid secondary markets, volatility, opaque pricing, hacking and fraud. Investors should be mindful of these risks, and if they cannot fully understand them and bear the potential losses, they should not invest in NFTs.”
The SFC’s main worry, however, appears to be the securitization of Nonfungible Tokens.
“The majority of NFTs seen by the SFC is meant to represent a unique duplicate of an underlying asset such as a digital image, artwork, music, or video,”
according to SFC, and hence they are not subject of the current regulation.
However, assets that blur the line between collectibles and financial assets, such as fractionalized or fungible NFTs structured as securities or collective investment schemes (CIS) in NFTs, are subject to the SFC’s supervision.
Unless an exemption exists, organizations engaging in certain activities must be licensed from the SFC before soliciting Hong Kong people.
CIS has recently gained traction as a viable way for ordinary investors to purchase fractional ownership of real-life items that would otherwise be too expensive for any single party. However, the topic of whether such investment structures are securitized continues to be debated.
The Royal Museum of Fine Arts Antwerp (KMSKA) used debt securitization in a recent endeavor to tokenize a million-EUR classic painting on the blockchain system. With the help of blockchain companies Rubey and Tokeny, the company was able to meet the strict regulatory standards.
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