A Hong Kong Bitcoin exchange has allegedly shut its doors with as much as £254 million ($US386 million) of investors’ funds missing, according to a report from CoinDesk.
MyCoin offered clients to invest in a contract that would provide a HK$1 million return (£84,823) on a HK$400,000 (£33,929) investment, and even, as the South China Morning Post says, offered additional prizes of Mercedes-Benz cars or cash if investors recruited others.
However, there are now fears that MyCoin operated a pyramid or “ponzi scheme,” which later paid investments out to early clients to create — illegally — the illusion that the company was seeing huge returns. One client said she was “told by those at higher tiers [of the scheme] that we can get our money back if we find new clients.” Tech In Asia is already labelling MyCoin a “pyramid scheme” and a “scam.”
The company’s offices have been closed for over a month for “renovation,” and fears are now mounting that the funds are gone for good. Customers did not have any written records of their investments beyond accounts on the website, making any potential criminal investigation difficult. Some reportedly took out mortgages in order to invest as much as HK$50 million — £4,274,815.
Bitcoin’s troubled trading history
Bitcoin’s history has been punctuated with scams and failed exchanges. Most famously, Tokyo exchange Mt. Gox shuttered in early 2014 with around $US450 million (at then current prices) in Bitcoin missing. More recently, hackers stole $US5 million from UK exchange BitStamp.
However, Hong Kong Bitcoin entrepreneur Aurélian Menant told Tech In Asia that MyCoin is more similar to classic scams than previous sophisticated Bitcoin hacks.
“MyCoin was offering its customers to invest in mining contracts, promising them 300 per cent year-on-year profits,” he said. “It is really a basic case of Ponzi scheme, exactly like what Madoff had done for years in the US with more classical investments… Investors were supposed to buy shares in mining rigs, and therefore get a proportional share of the returns.”
The overall figure $US387 million figure comes from the South China Morning Post. The paper calculated it based on a previous statement by MyCoin. The exchange had claimed it had 3,000 clients who had invested on average HK$1 million.
Business Insider has reached out to MyCoin for comment and will update if we hear back.
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