Business / Markets

Bitcoin exchange breakdown hurts investor confidence

(Xinhua) Updated: 2014-02-28 15:28

Some of Bitcoin enthusiast Mike Caldwell's coins are pictured at his office in this photo illustration in Sandy, Utah, Jan31, 2014. [Photo/Agencies]

BEIJING - The failure of Mt. Gox, once the world's largest bitcoin exchanges, has hurt market confidence in the virtual currency in China and prompted many Chinese investors to question its liability.

Mt. Gox's website went blank on Tuesday amid accusations it had suffered a massive theft. The Tokyo-based exchange said it decided to "close all transactions for the time being in order to protect the site and our users."

The exchange did not say when it would resume its services, which allow investors to withdraw bitcoins.

Is virtual money as good as gold?

The website failure prompted many to take to social media to express their anger and shock. One user of Sina Weibo, the popular Twitter-like service in China, said the website breakdown was "a disaster" for the bitcoin market.

"Such platforms are not subject to government regulation and therefore investors' interests could not be safeguarded," said a Sina Weibo user with the screen name "BEELEE9." The microblogger claimed that he lost two and a half bitcoins on Mt. Gox.

Another Sina Weibo user, "Luo Huilin," said the loss of two bitcoins on Mt. Gox made him worry about transaction security on other exchange platforms.

Bitcoins, stored in a virtual wallet, can pass from person to person around the world in secret, allowing users to remain anonymous. It bypasses both banks and banking regulators worldwide.

The Chinese public became aware of the digital currency in April, when movie star Jet Li's One Foundation received a donation of several hundred bitcoins to help quake-stricken Sichuan province. Later, it triggered a speculative frenzy.

Bitcoins have been at the center of controversy ever since they were created in 2009. Chinese regulators warned of the risks related to the digital currency in December.

In a statement, five government departments, including the central bank, said bitcoins are not issued by any monetary authorities and do not have the currency function of being legal tender with a government decree. They do not have the same legal status as fiat currencies, and should not be circulated in the market.