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.”