Government busts myth about virtual currency chasing wealth

The Financial Stability and Development Committee of the State Council, China's Cabinet, said in a recent meeting that the government is determined to crack down on bitcoin mining and trading to prevent individual risks from spreading to society.

Motivated by rising risk aversion sentiments in the market, the entry of large foreign investment institutions and other factors, the prices of virtual currencies has soared in recent days. The "wealth-making" myth surrounding virtual currencies has attracted a number of investors, including many inexperienced youth, in the hope of realizing "wealth freedom" through speculation.

However, the law of financial market development says that the wealth myth is accompanied by the risk of falling into poverty. In the virtual currency circle, as compared with rapid wealth generation, rapid wealth evaporation is more shocking. Within 24 hours of the top financial regulator issuing its statement, more than 200,000 investors suffered enormous losses, as 8 billion yuan ($1,248 million) disappeared from the sector.

Unlike earlier investors of virtual currencies, who usually had certain economic strengths, many recent investors are young people, including students, who lack basic judgment and/or the economic ability to avoid risks. Given that such a trend increases the possibility of individual risks spreading, the timely statement made by the authorities is expected to put in place necessary supervision to nip risks in the bud.

Most beginners only see the wealth-making ability of virtual currency investment, while ignoring the high risks of speculation.

Although dubbed "digital gold", bitcoin has a very fragile foundation, with prices fluctuating wildly even due to minor changes in regulatory direction. Moreover, due to the characteristics of decentralization and difficulty in traceability, it is difficult to supervise virtual currencies. The sector has thus become a hotbed for illegal and criminal activities, such as tax evasion, money laundering, smuggling and drug trafficking.

Such features as weak actual value, strong volatility and lack of regulation ensure that virtual currencies are different from normal investment tools and are full of speculation. This not only seriously disrupts the financial market order, but also infringes on the legitimate rights and interests of the public.

The regulator's latest statement signals tightened supervision over and ensuing rectifications of the virtual currency market. Investors, especially inexperienced ones, should enhance vigilance, deepen understanding of the virtual currencies and make prudent and rational investment moves.