Bitcoin exchange breakdown hurts investor confidence

The agencies demanded financial and payment institutions not price their products or services with bitcoins, or engage in transactions involving bitcoins, or accept insurances related to bitcoins.

"Bitcoins are a string of code and their virtual nature means that they are easy targets for computer viruses and hacker thefts, " said a bitcoin investor named Liu Bo.

Is virtual money as good as gold?

Investors should be cautious when entering the market as bitcoins can be traded 24 hours a day while there are no limits on price fluctuations.

On BTC China, the main bitcoin trading platform in the country, bitcoin were being traded at about 3,500 yuan, down about two percent over the past three days. But their price has slumped more than fifty percent from the record high of about 8,000 yuan in November.

"Mt. Gox's tragic violation of users' trust was the result of one company's abhorrent actions and does not reflect the resilience or value of bitcoins and the digital currency industry, " BTC China said in a joint statement with five other exchanges worldwide.

Such a statement is not enough to quell the controversy and market jitters, said experts.

Ding Zhaoyong, an associate professor at Jilin University, said investors should be wary that if one of the major bitcoin exchanges goes bankrupt, the bitcoin market might encounter a systematic crisis.

Gao Chaoxin, an investment manager at Yeequn Investment Holdings Ltd, said Chinese investors piled into bitcoins in a speculative frenzy because there are few better investment options in the real economy.

Zhu Rong, a bitcoin investor in Zhejiang province, said many domestic bitcoin exchanges have servers of their trading platforms operating overseas while the exchanges are not registered in China.

"If they 'flee' with the bitcoins, the investors will not know where to get them back," said Zhu.

"If Mt. Gox becomes insolvent and the bitcoins can not be withdrawn, it could only be defined as infringement of interests. But the virtual nature means that it would not be easy to get the evidence," said Zhu.

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