The JPEX cryptocurrency exchange fiasco threatens to deal a major blow to the city's attempt to transform itself into a major crypto hub unless local authorities demonstrate a resolve to handle the case strictly.

A failure to do so would seriously undermine Hong Kong's global reputation, which it simply cannot afford to lose.

Since market regulator the Securities and Futures Commission issued a public warning in respect of JPEX's crypto activities, at least 83 investors have filed complaints to police, with cases involving at least HK$34 million.

In response to the SFC's warning, JPEX reportedly acted quickly to limit the amount clients could withdraw to 1,000 Tether tokens - or USDT - but subject to an administrative fee of 999 USDT. That was lowered to 975 USDT later amid claims that each USDT was worth US$1.

In other words, investors were effectively blocked from making withdrawals since they would have to give up most of their sum to the platform owner every time a withdrawal was made.

If not dealt with quickly and forcefully, the incident will undermine Hong Kong's ambition to emerge as a major crypto center in rivalry with Singapore.

Cryptos are hardly a brand new concept, but a problem with them has been that some platforms trading in the virtual currencies have been riddled with controversies.

Reuters carried a report last year recalling how a group of North Korean hackers broke into a Slovakian crypto exchange to steal virtual currency worth US$5.4 million and open anonymous accounts on Binance to convert the stolen funds.

Banks in the city had legitimate concerns when they appeared rather reluctant in the beginning to provide banking services to crypto platform operators.

Otherwise, the Hong Kong Monetary Authority would not have contacted major local money lenders in a written reminder telling them diligence on potential customers should not create undue burden on crypto exchanges, especially for those setting up office in Hong Kong.

The Financial Times report forced the HKMA to confirm that it had asked local banks to try and meet the business needs of licensed crypto exchanges.

In the case of JPEX, SFC said the crypto exchange operator did not own a license here or was not in the process of applying for a license. JPEX hit back asserting that it was licensed elsewhere, though not in the SAR.

The publicity attracted by the case has helped focus attention on an aspect that may otherwise have drawn less notice and it may be unfair to blame the SFC for acting too slowly.

A number of the complainants have told the media that they bet with their money because they were influenced by social media influencers recruited by JPEX and because they had confidence in the local regulatory system.

The government must do everything possible to protect Hong Kong's reputation - the single most important factor for the city to be successful.

Strictest action essential in crypto fiasco