A false report on March 21 - that the People's Bank of China had issued a notice calling for all Bitcoin transactions to be halted by April 15 - was published on micro-blogging site Sina Weibo. The report was probably responsible for a sharp decline in Bitcoin prices across China's largest exchanges. It will probably affect Bitcoin prices some more.

At the end of February, the Tokyo-based Mt Gox company - once the largest Bitcoin exchange in the world - suspended trading. It closed down its website and exchange service and filed for bankruptcy. Mt Gox also announced that around 850,000 Bitcoins (750,000 belonging to customers' and 100,000 to the company) had gone missing and were probably stolen due to systematic weaknesses. This caused losses at the time of approximately $473 million (HK$3.7 billion).

A week after the collapse of Mt Gox, the Japanese government decided to clarify its position on the cryptocurrency - saying that it did not consider Bitcoin a real currency. But the Japanese government said it had no plans to regulate Bitcoin. Although Mt Gox claimed to have found 200,000 of the missing Bitcoins last month, the whole saga becomes even more complicated after the Japanese government and overseas creditors demanded reimbursement.

Bitcoin gained international attention due to its dramatically fluctuating prices. Since the first real-world transaction in 2010, when a user bought 2 pizzas with 10,000 Bitcoins (then valued less than $0.01), Bitcoin prices have skyrocketed with intermittent crashes and rebounds. Such volatile fluctuations have attracted the attention of many investors around the world.

The biggest controversy facing Bitcoin is whether it should in fact become a legal currency. Attitudes on this vary in different countries. China's central bank warned last December that Bitcoin was not legally protected and had no "real meaning". It stopped financial institutions using Bitcoin, which caused a substantial drop in Bitcoin prices. Some countries, including Germany and Canada, have accepted the legal status of Bitcoin as a currency. Other countries have not taken a definite position. But many Asian countries, including China, Japan, South Korea, India, Thailand and Indonesia, have stated firmly that Bitcoin is not a currency. As for the United States, the Federal Reserve said it had no authority to regulate Bitcoin - hinting that investors had to take their own risks.

I believe investors should be extremely wary about Bitcoin - or any forms of cryptocurrency. "Online currencies" have no issuers or any credit guarantees, so their prices tend to fluctuate easily. A high appreciation of Bitcoin is accompanied by a correspondingly high level of risk.

The case of Mt Gox should be a warning to investors because transactions are usually done via websites. This means people accessing these websites are at risk from hackers.

In recent times, Hong Kong has set up a Bitcoin ATM and a Bitcoin retail store. I don't know the exact number of people investing in Bitcoin in the city. But I hope the Hong Kong government does something about it. The government and the Hong Kong Monetary Authority should warn people to treat Bitcoin with caution because there are not yet any laws or regulations which cover virtual cryptocurrencies.

The author is vice-president of the Chinese Manufacturers' Association of Hong Kong.

(HK Edition 04/10/2014 page9)