Bitcoin deal that cost investors HK$3 billion a cautionary tale

Bitcoin came into favour after the global financial crisis. Some people believe that it will eventually be the virtual currency to challenge traditional ones just as the internet has revolutionised our lives and businesses. So far, to the relief of central bankers, that has not happened.

One reason it has not gained common usage is the volatility of its trading prices.

The speed with which bitcoin value rose in the last quarter of 2013 created a classic financial mania, drawing in speculators and amateurs alike hoping to make a quick buck. From a high of US$1,151, its value quickly plummeted. Today, it's south of US$220.

With financial manias, scams are usually not far behind. Sure enough, MyCoin, a Hong Kong-based bitcoin trading company, closed down suddenly last month, leaving about 3,000 local investors with combined losses of HK$3 billion.

The company's operations show all the telltale signs of fraud. Many customers, including an 81-year-old woman, paid more than HK$1 million each for bitcoin contracts, yet were never given legal documents or receipts.

They were barred from withdrawing their investment unless they could bring in new clients, which made it operate like a pyramid scheme.