This Risk Disclosure Statement is intended to be general in nature and may not disclose all of the risks or relevant considerations, including those specific to your circumstances, of opening a BDPW Account with Black Diamond Private Wealth LTD, known hereafter as BDPW, entering into a contract with BDPW for the use of its products and services, or buying, holding, lending fiat capital or trading digital assets. In light of all the risks, you should undertake such transactions only if you understand the nature of the contractual relationship which you are entering into with BDPW, and the extent of your exposure to the risks associated with owning, holding and trading in digital assets.
Buying, holding, or trading digital assets may not be suitable for everyone. You should carefully consider whether using any one of BDPW’s products or services is appropriate for you in light of your knowledge, experience, financial objectives, financial resources, and other relevant circumstances.
Digital assets, such as bitcoin, may be digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but do not necessarily have legal tender status (“Digital Assets”). Digital Assets are sometimes exchanged for currencies, but they are not generally backed or supported by any government or central bank. Their value is derived by market forces of supply and demand, and they are traditionally more volatile than fiat currencies. The value of Digital Assets may be derived from the continued willingness of market participants to exchange fiat currency for Digital Assets, which may result in the potential for permanent and total loss of value of a particular Digital Asset should the market for a Digital Asset disappear entirely. Governments may restrict the use and exchange of Digital Assets and the regulation thereof is still developing in most jurisdictions.
Digital Assets differ in their functions, structures, governance and rights. BDPW’s products and services support well established Digital Assets that function as a form of payment or means of exchange on a decentralized network, such as bitcoin and USD Coin. These Digital Assets have certain features that are analogous to existing commodities, such as currencies and precious metals, but are also different in many key respects, as described in this Risk Disclosure Statement.
The following is a brief summary of some of the risks associated with Digital Assets.
As a relatively new open-source technology, it is expected that there will continue to be technical developments in blockchain technology, which could impact the value
of a Digital Asset. Due to this short history, it is not certain whether the economic value, governance or functional elements of Digital Assets will persist over time.
Insufficient software development, contribution rates, community disputes regarding the development of the network and scaling options, or any other unforeseen challenges
that the community is not able to navigate could have an adverse impact on the price of a Digital Asset.
Open-source developers of blockchain technology have signalled that
they will continue to make efforts to improve the scalability and security of public blockchains. For example, in respect of the ethereum blockchain, developers replaced
the hash-based mining consensus mechanism of proof-of-work with a proof-of-stake mechanism. Changes may occur to the bitcoin blockchain, for example with the continued
development of scalability protocols like the Lightning Network, which operate on top of the bitcoin blockchain. The expected timing and impacts of this change are uncertain.
The value of Digital Assets can be extremely volatile and unpredictable, and holding any Digital Asset may result in significant loss in a short period of time. You should carefully assess your financial situation and determine if holding any Digital Asset is appropriate for you. Digital Asset markets are particularly sensitive to new developments, and since volumes are still maturing, any significant changes in market sentiment (including by way of sensationalism in the media, as a result of comments made by celebrities or certain companies or otherwise) may induce large swings in volume and subsequent price changes.
Digital Asset prices on trading platforms have been volatile and subject to influence by many factors, including the levels of liquidity, public speculation on future appreciation in value, swings in investor confidence and the future growth of alternative Digital Assets that may gain market share. In certain circumstances, it may become difficult or impossible to assess the value of your Digital Assets. The trading of Digital Assets on public trading platforms has a limited history. The prices available on those platforms have, in some cases, been more volatile and subject to influence by additional factors not specific to the value of Digital Assets, including liquidity levels and operational interruptions. Operational interruptions may limit the liquidity of Digital Assets on the trading platform, which could result in volatile prices and reduced confidence in the Digital Assets traded on those platforms.
BDPW uses liquidity providers to buy and sell the Digital Assets that BDPW may trade for you. Such a liquidity providers connect to multiple trading platforms in order to ensure ongoing liquidity of Digital Assets. However, there is a risk that the liquidity sources accessed directly and indirectly by BDPW are unable to return the best possible prices or execution quality. This risk may be greater during periods of high market volatility or operational outages at a major trading platform. Furthermore there is a possibility that there will not be enough liquidity to exist a position at the time of request.
A shift in regulatory characterization of a Digital Asset as a security or derivative could also impact its liquidity and transactability. If there is a change in the regulatory status or characterization of a Digital Asset available for trading, BDPW will re-assess the status and risks of the Digital Asset and update you accordingly.
Digital Assets represent a new form of digital value that is still in the early adoption phase amongst the broader public. Investors should be aware that there is no assurance that Digital Assets will maintain their long-term value in terms of purchasing power or that the acceptance of Digital Assets for payments by mainstream retail merchants and commercial businesses will continue to grow. Their underlying value is driven by a number of factors, including their utility as a store of value, means of exchange, or unit of account. Just as oil is priced by the supply and demand of global markets, as a function of its utility to, for instance, power machines and create plastics, so too is a Digital Asset priced by the supply and demand of global markets for its own utility within remittances, B2B payments, time-stamping, etc. Speculators and investors use Digital Asset as a store of value, then layer on top means of exchange users, creating further demand. If consumers stop using Digital Assets as a means of exchange, or their adoption slows, then the price may suffer. Given that the value of bitcoin may be derived at least partially from its capitalization and position as first mover, the value of other Digital Assets relies far more on their underlying blockchain technology and there is a risk that a competitor may gain popularity and negatively impact the price of bitcoin.
The value of ether (and the assets built on top of the ethereum platform) relies primarily on its underlying blockchain technology, but also on its utility as a store of value, means of exchange, and the demand of newly designed use cases. The ethereum blockchain is intended to allow people to operate decentralized applications using blockchain technology that do not rely on the actions of a centralized intermediary. Ether, which is the primary currency of the ethereum blockchain, can then be used to compensate for the effort of others to power these decentralized applications and ensure that any transactions that occur on these applications are recorded in the blockchain. Accordingly, the long-term value of ether may be tied to the success or failure of the blockchain technology, and the decentralized applications built upon the ethereum blockchain.
Blockchain networks are generally powered by open-source software. When a modification to that software is released by developers, and a substantial majority of miners consent to the modification, a change is implemented and the blockchain network continues uninterrupted. However, if a change were to be introduced with less than a substantial majority consenting to the proposed modification, and the modification is not compatible with the software in operation prior to its modification, the consequence would be what is known as a "Hard Fork" (i.e. a split) of the blockchain. One blockchain would be maintained by the pre-modification software and the other by the post-modification software. The effect is that both blockchains would operate in parallel, but independently. There are examples of such hard forks occurring in the past. In the future, such a hard fork could occur again. You acknowledge that Hard Forks may materially affect the value, function, and even the name of the Digital Assets associated with your BDPW Account. In the event of a Hard Fork, BDPW may temporarily suspend certain services on the Platform (with or without advance notice to you) while BDPW determines, in its sole discretion, which Digital Asset to support. Hard Forks are wholly outside of BDPW’s control, and BDPW’s ability to deliver forked Digital Assets resulting from a forked network may depend on third parties.
Similar to the blockchain networks themselves, Digital Assets built on top of ethereum or that integrate with ethereum DApps are self-governed and subject to frequent upgrades by the open-source community. As new versions are released, the value of the asset might be impacted and material changes to functionality could trigger changes in demand, supply or price. BDPW reserves the right to decide how the Platform will continue to support the resulting assets of a fork or protocol upgrade, if at all.
Furthermore, derivatives of a fork or protocol upgrade may also occur and will need to be determined at the time as to being a supported ticker or not by BDPW. BDPW through it’s Proprietary Indexed Fund may purchase forked coins or tokens at it’s own discretion.
In the past, flaws in the source code for Digital Assets have been exposed and exploited, including flaws that disabled some functionality for users, exposed users' personal information and/or resulted in the theft of users' Digital Assets. Although the bitcoin and ethereum blockchains have demonstrated a certain level of resiliency and integrity over time, the cryptography underlying either one could, in the future, prove to be flawed or ineffective. For example, developments in mathematics and/or technology, including advances in digital computing, algebraic geometry and quantum computing, could result in the cryptography of the blockchain network being vulnerable to attack. Generally, any reduction in public confidence on the security or source code of a core blockchain network could negatively impact the broader sector, and this could negatively affect the value of Digital Assets.
Layer two chains such as Polygon, Optimism, Arbitrum may also be used instead of the layer one chain of Ethereum. This will depend on the use case and the desire outcome at the time of purchase, as well as other layer one chains they may even not be in existence at the time of writing.
Legislative and regulatory changes or actions by governments in different jurisdictions may adversely affect the use, transfer, exchange, and value of Digital Assets. You acknowledge that Digital Assets are new forms of assets, that the law regarding their ownership, custody, and transfer is developing and uncertain, including any potential taxation thereof, and that custody of Digital Assets poses certain risks that are not present in the case of more traditional asset classes; and you further acknowledge that you will bear such risks and the potential loss or diminution in value of such Digital Assets due to changes or developments in the law or conditions under existing law as a result of which your rights in and to such Digital Assets are not adequately protected.
The tax treatment of Digital Asset transactions is uncertain and it is your responsibility to determine what taxes, if any, arise from your transactions using BDPW’s products and services. You are solely responsible for reporting and remitting any applicable taxes arising from your transactions with BDPW to the appropriate tax authorities. You acknowledge that BDPW does not provide any tax, legal, financial, investment, accounting, estate-planning, or other professional advice governing these transactions. You should consult your own tax and other professional advisors before making any decisions with respect to Digital Asset transactions. Notwithstanding the foregoing, you further acknowledge that BDPW may report information and withhold taxes with respect to your transactions, payments, loans or transfers made by or to you, as a result of your use of BDPW’s products and services, to a tax authority to the extent such reporting or withholding is required by applicable law. BDPW will provide a quarterly and end of year report for taxation purposes to all clients.
Certain addresses on the bitcoin and ethereum blockchain networks hold a significant amount of the currently outstanding bitcoin and ether, respectively. If one of these addresses were to exit their bitcoin or ether positions, it could cause volatility that may adversely affect the price.
Whenever BDPW review a new Digital Asset, BDPW assess the ownership concentration of that particular asset. There are a number of ways in which a Digital Asset could be negatively impacted by a concentration of assets or power, including but not limited to: (i) if a participant or node operator gains control of a significant portion of a particular asset, (ii) if a 51% attack is successful, which means a mining entity gains control of enough hash power or stake in a proof-of-stake system to control which blocks are mined, which would significantly erode trust in the public blockchain networks, (iii) if a protocol’s decision-making power is concentrated to one or few holders which means consensus processes are threatened leading to poor or disruptive changes, or (iv) if applicable, if key actors make certain changes against the will of the broader community that could adversely impact the protocol or Digital Asset’s value. This is not an exhaustive list and new protocols can present unique concentration risks.
There are risks associated with using BDPW’s internet-based Platform including, but not limited to, the failure of hardware and software. BDPW maintains an independent and secure ledger of all transactions to minimize loss and maintain contingency plans to minimize the possibility of system failure. However, BDPW does not control signal power, reception, routing via the internet, configuration of your equipment or the reliability of your connection to the internet. The result of any failure of the foregoing may be that you are unable to conduct a transaction, your transaction is not executed according to your instructions, or your transaction is not executed at all. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a particular Digital Asset suddenly drops, or if trading is halted due to recent news events, unusual trading activity, or changes in the underlying Digital Asset system. The greater the volatility of a particular Digital Asset, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to one or more of the following: system failures, hardware failures, software failures, network connectivity disruptions, and data corruption.
The nature of Digital Assets may lead to an increased risk of fraud or cyber-attack. A breach in cyber security refers to both intentional and unintentional events that may cause BDPW to lose proprietary information or other information subject to privacy laws, suffer data corruption, or lose operational capacity. This in turn could cause BDPW to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to BDPW’s digital information systems (e.g. through "hacking" or malicious software coding),but may also result from outside attacks such as denial-of-service attacks (i.e. efforts to make network services unavailable to intended users). In addition, cyber security breaches of BDPW’s third-party service providers (e.g. a liquidity provider or a custodian) can also give rise to many of the same risks associated with direct cyber security breaches.
Although BDPW has developed systems and processes designed to protect the data BDPW manages, prevent data loss and other security breaches, effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. BDPW may experience cyber-attacks, extreme market conditions, or other operational or technical difficulties. BDPW is not and will not be responsible or liable for any loss or damage of any sort incurred by you as a result of such cyber-attacks, operational, market or technical difficulties.
Any Digital Assets held on the Platform are not protected by any government deposit insurer or investor protection funds. By holding your Digital Assets with BDPW you are exposed to insolvency risk (credit risk) on BDPW’s part or on the part of BDPW’s custodian designated to hold such Digital Assets.
Certain Digital Assets confer a right to vote on topics that may directly and indirectly affect functionality and economics of a particular crypto asset, including changes to block reward amounts, inflation percentages, consensus modelling or governance models. The Platform does not enable any voting functionality to users.
Although BDPW does not charge any commission fees, BDPW may earn a spread on your trade of Digital Assets. Any fees that BDPW may charge on any of its products or services may be based in part on the fees charged to BDPW by its third-party service providers (e.g. a liquidity provider or a custodian), which are subject to change. All BDPW Lenders are provided with a Loan Agreement and a Loan Certificate for all loaned fiat currency at the time of the loan. All loans outline the exact amount that BDPW has agreed to pay to the Lender upon maturity of the loan.
All isolated wallet holders or trading accounts are based 100% on market conditions and BDPW has outlined this in the trading or Isolated Account agreements prior to being funded by the client.
Transactions in Digital Assets may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable. Some Digital Asset transactions are deemed to be made when recorded on a public ledger, which is not necessarily the date or time that you initiate the transaction.
An improper transfer (whereby Digital Assets are accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Digital Assets agreeing to send such Digital Assets back to the original sender in a separate subsequent transaction. If you or BDPW erroneously transfer, whether accidental or otherwise, Digital Assets in incorrect amounts or to the wrong recipients, such Digital Assets may become unrecoverable. Although every care and consideration are taken, human error is possible and BDPW will take no responsibility in such cases.
The loss or destruction of certain “private keys” (numerical codes required by BDPW to access its Digital Assets) could prevent BDPW from accessing its Digital Assets. Loss of these private keys may be irreversible and could result in a loss to you of all assets held under these keys.
At peak times, or during a period of instability in a blockchain network, it may not be possible to move your Digital Assets to private keys that are personal to you as fast as is typical. When you choose to conduct a transaction involving Digital Assets you may experience a delay caused by the blockchain that you are interacting with and/or delays caused by the technical systems that make up the Platform. Any Digital Asset transaction that you initiate will result in an immediate change in your BDPW Account but the transaction will take some time to become finalized on the applicable blockchain (i.e. incorporated into a block in a blockchain), and cannot be cancelled in the interim. It is possible that for technical or business reasons (e.g. network congestion on a blockchain), despite BDPW’s usual practice of rebroadcasting, a blockchain transaction may not become finalized (i.e incorporated into a block on the respective blockchain), and eventually your BDPW Account will reflect the failure of the transaction. In unusual circumstances it could take 48-72 hours for a failed transaction to be displayed properly within the Platform. If you experience unusual or frustrating delays, you should contact BDPW’s customer support for assistance.
Furthermore, when any loans reach maturity, BDPW outlines that there may be a delay of up to 30 days to receive your funds into you bank account. Banks play a pivotal role in sending and receiving converted funds from crypto currency to fiat currency and may at any time, for any reason, question where the funds have come from and the true nature of these funds. The banks may delay the transfer or cleared funds arrival into the destination account, until all their questions have been satisfied by the sender in most cases, however it is not unheard of that the receiver is also needing to respond and satisfy their enquires.
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