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In the aftermath of media reports that a bitcoin exchange may have run off with $387 million in client funds, Hong Kong’s central bank has been warning people against investing their money in virtual currencies. Yesterday, the South China Morning Post reported that clients of MyCoin, a Hong Kong-based bitcoin exchange firm, had approached a local lawmaker claiming that the company had absconded with their money. An assistant for Legislative Council claimed to have received more than 15 complaints from MyCoin clients regarding this alleged fraud, which would be passed on to the police tomorrow.
Late yesterday, the Hong Kong Monetary Authority (HKMA) mentioned in a statement that this case could involve fraud or pyramid schemes, and given the highly speculative nature of bitcoin, they have continued to urge the public to exercise particular caution when considering making transactions or investments using this virtual currency.
Bitcoins are created through a “mining” process, where a computer’s resources are used to perform millions of calculations. According to advocates of bitcoin, the virtual currency is so revolutionary because it isn’t controlled by a central bank, giving it worlds of potential as an alternative means of online payment. However, the rise of bitcoin has stoked concerns that it can be used for less-than-savory purposes, such as laundering money or financing extremist groups. For example, it was the currency used for the illegal online drug service “The Silk Road”.
Mt. Gox, previously the largest bitcoin exchange in the world, filed for bankruptcy a year ago after claiming to have lost around $500 million worth of customer bitcoins in a hacking attack. On its website, MyCoin claims to be a leading global bitcoin trading platform, with a China-based research and development team. MyCoin promised clients a HK$1 million ($128, 976) return over the course of 4 months, based on a HK$400,000 investment that would produce 90 bitcoins on maturity. MyCoin also claimed to have 3,000 customers each, investing on average HK$1 million. The price of bitcoin has seen a significant slump from its late-2013 high of above $1,000 to currently around $220.