Bitcoin is in the news again as Hong Kong-based trading exchange MyCoin closed its doors, leaving as many as 3,000 local investors with combined losses of HK$3 billion (US$387 million). Last year the bankruptcy of Tokyo-based Mt. Gox left a US$500 million hole but it seems MyCoin's case may be different.
ZD Net reports around 30 MyCoin clients are filing reports to authorities that MyCoin wasn't really a Bitcoin exchange but more of a pyramid-style Ponzi scheme.
The last couple of months there were a number of irregularities, including a change to MyCoin's trading rules that forbid clients from withdrawing Bitcoins without recruiting other customers. One month before the new trading rules, the firm's sole director left and was replaced by a woman who is listed as director for 167 companies. In addition, the MyCoin office in Tsim Sha Tsui closed last mnth due to "renovations", and the sole director of Rich Might Investment, where many MyCoins clients penned their cheques to, resigned in November last year.
MyCoin customers were promised up to HK$1 million as a return on their money in four months for buying a HK$400,000 Bitcoin contract. The contract, which was meant to produce 90 bitcoins on maturity, also encouraged clients to lure others to the fold with new customer recruitment rewards such as extra profit, prizes and cars.
No customer was given written proof of their investment, and in December, MyCoin changed its trading rules -- forbidding clients from withdrawing their virtual currency unless they recruited other customers.
One MyCoin client, who has lost HK$1.3 million ($168,000) in four Bitcoin contracts, told the publication:
"No one seems to know who is behind this. 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."
Bitcoin has had a wild ride in recent years, the virtual currency was valued over US$1,100 for a brief period of time in late 2013 but the boom was followed by a massive collapse. At press time a Bitcoin is worth around US$220.