Bitcoin spawns virtual IPOs in China

The Bitcoin craze is catching on in China.

Sun Minjie is a 28-year-old internet worker who lives in Beijing. Eager to profit from growing demand for the digital currency, Sun has invested more than US$3,000 in a company called 796 Xchange, an online exchange for trading stocks and other financial instruments related to Bitcoin, where initial public offerings are also being held.

He is part of a small but growing group of investors in China who have put the country into contention with the US as the biggest downloader of the virtual money that's being used to buy a growing range of goods and services online. While intensified scrutiny by US regulators casts doubt on the currency's future there, China's Bitcoin industry is expanding.

"What's worrisome is that a lot of people could be just treating it as a speculative investment," said Peter Pak, head of trading of BOCI Securities in Hong Kong. "In China, the stock market, property and bond market are all not so good, so people get really excited when they hear of a new investment that generates high returns."

Sun's outlay of about 28 Bitcoins - around US$3,108 - for more than 400 shares in 796 Xchange has returned 46 per cent since the stock's August 1 debut on the company's own website. The benchmark Shanghai Composite Index has only gained about 2 per cent during the same period.

Bitcoin is similar to other currencies - say, the Mexican peso - except it's not controlled by any government and the total number is capped at about 21 million coins. Computer users can "mine" them by solving mathematical puzzles - uncovering the hidden series of letters and numbers that matches up with security keys specified by the computer programmers who invented Bitcoin in 2009. As more are mined, the puzzles get harder, and therefore more expensive to crack.