Hong Kong's Central Bank Warns Against Investing in Bitcoin in Wake of Alleged Pyramid Scheme When MyCoin suddenly shut down, some $387 million in investor cash bit the dust. Officials suspect that the exchange scammed customers all along.
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If you play with Bitcoin, watch out -- you could get burned.
That's essentially the warning Hong Kong central bank is urging consumers to heed in the wake of reports that Chinese Bitcoin exchange MyCoin allegedly stole some $387 million ($3 billion in Hong Kong dollars) in investor funds. Officials suspect that the Hong Kong-based trading platform might have been a sketchy pyramid scheme all along.
"Such investments may involve fraud or pyramid schemes," the Hong Kong Monetary Authority (HKMA) cautioned in a statement released late last night, referring to MyCoin's meltdown, likely the worst since Mt. Gox bit the dust. "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."
In what smacks of fraud, MyCoin's estimated 3,000 clients were promised a return of $1 million Hong Kong dollars (or $128,976 U.S. dollars) on a $400,000 investment over a span of four months, reports the South China Morning Post. MyCoin investors were also reportedly offered additional profits and prizes, including a Mercedes-Benz vehicle, in exchange for sourcing more clients.
MyCoin did not immediately respond to Entrepreneur's request for comment.
Word of the exchange's unexpected shutdown emerged last Friday, when some 30 MyCoin clients informed a local Hong Kong legislator, Leung Yiu-chung, that they believed they were the victims of fraud at the hands of the company. The jilted customers will reportedly file police reports tomorrow, alleging that MyCoin roped them into a pyramid scheme cloaked within a legitimate bitcoin trading operation.
"No one seems to know who is behind this," a woman claiming to be a MyCoin investor told the South China Morning Post. "Everyone says they too are victims...but we were told by those at higher tiers [of the scheme] that we can get our money back if we find more new clients."
Adding fuel to what Tech In Asia has dubbed a "pyramid scheme," is the fact that last month MyCoin shuttered its office in Tsim Sha Tsui, Hong Kong. A note was left on the door, blocked by a wooden plank, stating that the location would be closed for renovation starting on Jan. 3.
Without written records to track their investments, MyCoin customers might never see the money they entrusted the exchange with.
Meanwhile, the price of Bitcoin is trading at $217.59, per the CoinDesk Bitcoin Price Index, a far cry from its December 2013 peak of $1,130.