By
Mayowa Adebajo
March 21st, 2024
The Hong Kong Monetary Authority warned public against investing in digital currencies amid local media reports that a bitcoin exchange had run off with $387M in client funds.
The Hong Kong Monetary Authority (HKMA) has recently issued a statement to remind the public to be aware of the risks associated with Bitcoin.
“The HKMA has repeatedly reminded the public through the media about the risks involved in Bitcoin trading. We would like to reiterate that Bitcoin is not a legal tender but a virtual “commodity”. As Bitcoin does not have any backing – either in physical form or from the issuer – and its pricing is highly volatile, it does not qualify as a means of payment or electronic money,” read the statement.
The statement has probably been issued in the wake of recent fraud allegations against a Chinese Bitcoin investment company MyCoin.
“Regarding media enquiries about reports filed to the Police concerning a Bitcoin company, the Hong Kong Monetary Authority responds as follows:
We noticed that people affected have reported their cases to the Police and the incident may involve fraud or pyramid schemes. The HKMA does not comment on the specific case.”
Looking back, MyCoin disappeared with $387M of investors’ funds. It had allegedly been running an illegal pyramid scheme and unexpectedly closed last month. About 3,000 local investors signed up for the promise of a HK$1 million (US$129,000) return on HK$400,000 (US$52,000) bitcoin mining contracts.
“Mycoin was offering its customers to invest in mining contracts, promising them 300 percent year-on-year profits. It is really a basic case of Ponzi scheme, exactly like what Madoff had done for years in the US with more classical investments,” explained Aurélien Menant, founder of Hong Kong bitcoin exchange Gatecoin. “Investors were supposed to buy shares in mining rigs, and therefore get a proportional share of the returns of the mining activity.”
South China Morning Post (SCBP) reported that in December, the company changed its trading rules, prohibiting investors to cash in all their bitcoins unless they manage to find more clients. Only a trading account on the company’s trading platform was provided to all the customers of MyCoin.hk, even though there were not any written documents or receipts.
Furthermore, SCMP said that MyCoin did not pay according to the full bitcoin price, now valuing it at only HK$20 per unit compared to the international bitcoin price of around HK$1,770 (US$228) today.
The company’s scheme looks very similar to the one of GBL, a bitcoin exchange also based in Hong Kong that escaped in November 2013 with about US$4.1 billion of investors’ money.
“Bitcoin and other similar virtual commodities are not regulated by the HKMA. Given the highly speculative nature of Bitcoin, we would like to remind the public to exercise extra caution when considering making transactions or investments with Bitcoin,” said an HKMA spokesperson.