Hong Kong's central banks warns against investing in virtual currencies

Hong Kong's central bank has warned people against investing in virtual currencies amid media reports that a bitcoin exchange might have cleaned off $387 million in client funds, Reuters reported.

This would potentially make it the biggest bitcoin scandal after last year's bankruptcy at Tokyo-based Mt.Gox.

The South China Morning Post reported yesterday that clients of Hong Kong-based MyCoin had approached a local lawmaker alleging the company had run away with the money.

The Hong Kong Monetary Authority (HKMA) said in a statement late yesterday that the case "may involve fraud or pyramid schemes," adding, "Given the highly speculative nature of Bitcoin, we have all along urged the public to exercise extra caution when considering making transactions or investments with Bitcoin."

A 'mining' process is used to create bitcoins, in  which a computer's resources are used to perform millions of calculations.

According to advocates of Bitcoin, the virtual currency was revolutionary as it was not controlled by a central bank and held potential as an alternative means of online payment.

However, the rise of bitcoin which was unregulated in many countries including Hong Kong, had led to concerns over its potential use as a vehicle to launder money and finance extremist groups.

Meanwhile, according to cryptocoinsnews.com reports from Hong Kong indicated that the MyCoin Exchange had just closed, locking out over three thousand large investors. The closure comes almost one year to the day after the world's largest Bitcoin exchange, Mt Gox, closed off all exchange withdrawals on 7 February, 2014 taking away almost 750,000 investor's Bitcoins with it and  100k of the exchange's cache (See: Bitcoin exchange MtGox files for bankruptcy protection).

MyCoin's abrupt exchange closure had a potential cost a combined value of three billion Hong Kong Dollars, which was equivalent to about $387 million.

The affected investors will file reports tomorrow with Hong Kong authorities as deception was involved in a pyramid-style Ponzi scheme perpetuated by the exchange owners, packaged and sold as a bitcoin trading exchange.

The $387 million figure worked out on the basis of earlier statement by the company that it had 3,000 clients in Hong Kong, each investing an average HK$1 million.