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Hong Kong Regulator Warns Investors of Risks Associated With NFTs

Non-fungible tokens have become a massive part of the crypto industry. Numerous investors and companies are either creating or investing in the NFTs. However, the securities regulator of Hong Kong has warned the investors about the risks associated with the non-fungible tokens. The regulator has reminded the investors not to neglect the potential risks. Moreover, it also advised that the investors should only invest in NFTs if they fully understand all the risks and make a sensible decision with their hard-earned money. 

The Hong Kong regulator stated that just like other digital assets, NFTs also have numerous risk factors, and people should only invest if they understand all the risks. 

Interface News published a report on June 6. The report stated that the Hong Kong Security Regulatory Commission (HKSRC) had indicated numerous risks associated with NFTs. These include a lack of transparency in the way NFTs are priced, volatile prices, lack of liquidity in the secondary market, and the risk of hacking. 

The warning was issued after the HKSRC observed that several NFTs have unique qualities. The report stated that numerous NFTs are straddling the line between financial assets and collectibles. That means the homogeneity or subdivision with structures similar to securities or any interests that come under the heading of collective investment scheme tokenized NFTs. 

Furthermore, the report stated that any non-fungible token that constitutes an interest under the collective investment scheme would be considered a regulated activity. However, that includes the marketing and the distribution of the NFTs. Hence, the regulator stated that since such activities come under-regulated activities, any person involved in such activities must have a license. 

The statement by the HKSRC was not out of the blue. All the risk factors stated in the report can be witnessed through recent developments in the crypto market. Just recently, the discord server of the Bored Ape Yacht Club came under a phishing attack, and NFTs worth $300,000 were stolen. In April, the Instagram account of the Bored Ape Yacht Club was targeted, and NFTs worth 888 ETH were stolen. All these factors lead to the conclusion that investing in NFTs is risky, and only those aware of the risk factors should invest. 

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