Bitcoin Mania Grips China; There are about 11.6 million Bitcoins in circulation and the total number that can be mined is capped at about 21 million; 10 million Bitcoins yet to be mined have a value of $1.44 billion

September 6, 2013 Leave a comment

Bitcoin Mania Grips China

By Lulu Yilun Chen September 05, 2013

Sun Minjie, a 28-year-old Internet worker who lives in Beijing, has invested more than $3,000 in 796 Xchange, a website where people buy and sell shares of companies that deal in Bitcoins, the digital currency. The stock of 796 Xchange, which also deals in Bitcoin futures, returned about 57 percent from Aug. 1, when it started trading on the company’s website, through Sept. 3. The benchmark Shanghai Composite Index gained about 4.6 percent during the same period. “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,” says Peter Pak, head of trading at BOCI Securities in Hong Kong.In May, China briefly overtook the U.S. in monthly creation of Bitcoins, rising from seventh place in August last year. China now ranks second, according to SourceForge, a technology website that tracks Bitcoin activity worldwide. Created four years ago by a person or group using the name Satoshi Nakamoto, Bitcoin is a virtual currency that can be used to buy and sell a growing range of goods and services online—from cupcakes to electronics to illegal narcotics.

Computer users can “mine” Bitcoins 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 the currency. As more coins are mined, the puzzles get harder, and cracking them requires specialized computers. Sun gave up after a month, concluding that his computers weren’t up to the task. “Simple desktops can no longer dig them up,” he says.

There are about 11.6 million Bitcoins in circulation, reports currency tracker Blockchain.info, and the total number that can be mined is capped at about 21 million. Prices have been volatile, varying from $84 to $266 each over one week in April, according to Tokyo-based Mt. Gox, the largest exchange that allows Bitcoins to be traded for dollars, euros, and other currencies. At the recent price of about $144, the almost 10 million Bitcoins yet to be mined have a value of $1.44 billion.

In China, that buried treasure is attracting sellers of virtual mining equipment such as Labcoin, managed by Hong Kong-based ITec-Pro. Labcoin, which began trading its shares this month on an online exchange, has a market value of 20,000 Bitcoins, or about $2.9 million. Another company, Myminer, operates “mining farms” in China, where it says the low cost of power to run vast numbers of computers gives it an edge. BTCChina.com, China’s most popular Bitcoin exchange, lets traders use the payment systems of more established companies, including Tencent and Alipay, an affiliate of Alibaba Group, to buy and sell the virtual currency. Other Bitcoin trading platforms popular in China are FXBTC.com and Btctrade.com.

Regulators in China have so far ignored Bitcoins. “The advantage for Chinese users to use Bitcoin is freedom,” says Patrick Lin, system administrator at an Internet company and owner of about 1,500 Bitcoins. “People can do something without any official authority.” Lin says he’s sticking to the currency itself rather than investing in Bitcoin companies, in part because of weak regulation. “The Bitcoin world is just like the Wild West. No law, but opportunity and risk,” he says.

The China Securities Regulatory Commission didn’t respond to a faxed query asking whether it’s considering Bitcoin rules. The industry may continue to fly below the radar of a Chinese government more preoccupied with a faltering economy and social stability. “If the circulation of Bitcoins is still confined to a small circle of people, it won’t be something on the Chinese authority’s priority list,” says Edward Au, co-head of Deloitte China’s public offering group. “They already have too much to cope with.”

The bottom line: With more than $1 billion in Bitcoins yet to be mined, Chinese investors and companies are lining up to cash in.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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