Financial experts are calling on the government to tighten its supervision on Bitcoin trading in Hong Kong in the aftermath of the collapse of mycoin.hk which reportedly took in an estimated HK$3 billion from thousands of investors.

Simon Lee Siu-po, a senior lecturer at the business school of the Chinese University of Hong Kong, said regulations are lagging behind the trade in this virtual currency despite repeated government warnings about the potential risks. "The Hong Kong Monetary Authority (HKMA) doesn't supervise Bitcoin because it's not seen as a currency. The Securities and Futures Commission also can't regulate Bitcoin as it's not a normal investment product like mutual funds," Lee said. The authorities, he suggested, should set up a licensing mechanism to oversee virtual currency related businesses.

Lee noted that trading in Bitcoin is a high risk proposition. "Virtual currencies like Bitcoin are not supported by a real economy and their price fluctuations are severe," he said. "It is definitely not for non-professional investors," he added.

Ted Ip Hong-ki, general manager of Bitcoin vending machine maker Bitcoinnect, warned that it is impossible to achieve the high return that mycoin.hk had promised its clients. He said the price of Bitcoin has dropped sharply and the "mining" of it is getting harder. Even a supercomputer needs a whole day just to "mine" around 0.1 Bitcoin.

As a decentralized virtual currency, Bitcoin can be "mined" by any person using software to solve complex math puzzles. Only 21 million Bitcoins had been churned out. The total issued so far amounted to 13.8 million, according to CoinDesk, a website following digital currencies. The market value of a Bitcoin is about HK$1,680 on Tuesday, compared to more than HK$9,000 in November 2013.

Ip doubted that mycoin.hk just used Bitcoin as a commodity to build its pyramid structure. "To reduce the risk, the investors should print out their Bitcoins instead of putting them on the trading platform. If the platform collapses, the investors may never get their money back," he said.

He Yi, co-founder of OKCoin, one of the biggest Bitcoin traders on the mainland, urged investors to check bitcoin trading platforms' financial status and the background of their executives before signing up.

An HKMA spokesperson said as Bitcoin does not have any backing - either in physical form or from the issuer - and its pricing is highly volatile. For those reasons, Bitcoin does not quality as a means of payment or electronic money.

"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," said the spokesperson.

felix@chinadailyhk.com

(HK Edition 02/11/2015 page1)