Why the Chinese Love Bitcoins
The Chinese have found a new investment that sidesteps the scrutiny of the country's authorities. And for now, it's paying off big.
Bitcoins, a virtual currency invented in 2009, is attracting investment-hungry Chinese who often struggle to find good assets that generate high returns.
The investments have paid off for people like Sun Minjie, a 28-year-old Internet worker who lives in Beijing. He paid about 28 Bitcoins, worth roughly $3,000 at the time, for more than 400 shares in virtual stock exchange 796 Xchange. He's seen a 46 percent return on his investment since its Aug. 1 debut. Compare that with the 2 percent gain on the Shanghai Composite Index for the same period.
It's no wonder why China has surged from seventh place in global Bitcoin collections last year to second, ranking only behind the U.S. In the past month, a flurry of local IPOs priced in Bitcoins, including 796 Xchange, Myminer and Labcoin, have also listed on virtual Bitcoin stock exchanges.
For Sun, Bitcoins have so far offered real returns. This is rare in a country where a rising middle class struggles to find valid investments to protect their assets against inflation.
"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," said Peter Pak, head of trading of BOCI Securities in Hong Kong. "What's worrisome is that a lot of people could be just treating it as a speculative investment."
Bitcoin isn't controlled by any government. That's part of why the virtual currency is so popular in China, a country where the government controls the flow of money overseas and keeps a tight rein on what it views as undesirable behavior at home. Chinese investors love having the option of buying Bitcoins in yuan and selling them in U.S. dollars or other hard currency.
"The advantage for Chinese users to use Bitcoin is freedom. People can do something without any official authority," said Patrick Lin, system administrator of Erights.net. He owns about 1,500 Bitcoins. Lin said he’s sticking to the currency itself, rather than initial public offerings, in part because of weak regulation on Bitcoin.
"The Bitcoin world is just like the Wild West -- no law, but opportunity and risk," said Lin.
This story also appears in Bloomberg's Global Tech Today newsletter. To get an early jump on the top tech news from around the world, sign up for the free weekday report.