Problems for bitcoin in China

November 5, 2013 Leave a comment

Problems for bitcoin in China

Staff Reporter

2013-11-05

The sudden closure of an online trading platform of the virtual currency bitcoin in China brought to the fore the problems surrounding the new currency in the country, where such transactions are surging, the Guangzhou-based Southern Weekly newspaper reported. Chinese users of GBL, a bitcoin trading platform that claims it is based in Hong Kong, were shocked when they found on Oct 26 that access to the service’s website was no longer available.One bitcoin was valued at US$225 on Nov 4, according to Mt.Gox, the world’s largest online currency exchange.

With their un-cashed bitcoins lost as a result of the discontinuation of service, users across China have decided to report the case to local police, which had not yet decided, as of Oct 30, whether the case had been made for an investigation, the newspaper said.

GBL, whose domain — btc-gbl.com — was only registered on May 9, had been a questionable business from the outset, as the introduction to its services featured on the company’s website was a patchwork of information cut and pasted from other companies.

Although the company behind GBL officially registered with the Hong Kong authorities on June 10, it did not obtain any license to operate financial services, the newspaper said.

However, these questions raised by certain experienced bitcoin traders in online forums were overlooked after GBL flooded the Chinese online community with its promotional messages and launched campaigns promising fee waivers to attract new users.

GBL also gained a market share with its futures market established for bitcoin, which was easily manipulated, perhaps even by the service itself, because of the small amount of trade involving the currency in China, according to the newspaper.

With the loopholes in futures trading becoming more obvious, GBL announced it was closing the market in mid-September, a move seen as a sign the service was shifting to a model similar to major players in the business.

Yet, some users noticed worrying signs, such as GBL’s issuance of its stocks to users from mid-September, as well as a longer processing time and a cap on cashing Bitcoin since early October, and pulled out early.

In fact, research conducted by Southern Methodist University assistant professor Tyler Moore and Carnegie Mellon University assistant professor Nicolas Christin found that 18 of the 40 Bitcoin trading platforms set up in the past three years had closed, including TradeHill, which was once the second-largest in terms of transaction volume.

Moreover, 13 of the discontinued services closed without any prior notice, while the remaining five were forced to shut down following hacker attacks. Only six of them were known to have offered refunds to users.

A report featured in Chinese state broadcaster CCTV’s evening newscast in late October about the first bitcoin ATM in Canada led to some online users speculating about the country’s possible recognition of the currency. However, Bitcoin’s unclear legal status and talk of its links with illegal activities, such as money laundering and tax evasion, along with alleged scams, still pose a great risk to holders of the currency, the newspaper noted.

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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