China’s state-run Xinhua News Agency has published an editorial alerting readers to the perils of speculation in cryptocurrencies and blockchain-related stocks, following a 25% surge in Wind’s blockchain index across a period of just over a month.
The editorial entitled “Blockchain Frenzy – Watch Out for Misplaced Speculation!” (区块链刷屏了，警惕“买椟还珠”式炒作) points out that while the Chinese government is currently pursuing research into the potential economic benefits of the new technology in areas such as supply chain management and food safety, it’s also keenly aware of the potential risk of related speculative investments.
“Experts point out that we should prevent misplaced speculation when it comes to blockchains and virtual currencies,” said Xinhua.
“Since the start of 2018, regulatory agencies have already issued three directives demanding inspections of the production (mining) and trading of virtual currencies, as well as warned of the risks.
“The A-share market has recently seen a wave of investment in blockchain (stocks), with data from Wind indicating that its blockchain index rose by over 25% during the period from 6 December 2017 to 12 January 2018.”
“At the same time the rise in blockchain-related virtual currencies has been even more shocking…Ethereum has risen from around 2,000 yuan at the start of November on one virtual currency trading app to nearly 8,000 yuan at present.”
Xinhua said that the Chinese Fintech sector and virtual currency can expect greater scrutiny from regulators moving ahead.
“Blockchain technology has drawn a wave of investment, while affiliated virtual currency transactions are even more acutely a case of being ‘too hot for clarity.’
“This has triggered a high level of attention from financial regulators, and since the start of the new year the release of a succession of three official documents directed specifically at virtual currencies.”
Xinhua nonetheless indicates that any crackdown on speculative investment in cryptocurrencies would not mean the withdrawal of vigorous official support for the domestic development of blockchain applications in other fields.
“For nearly the past two years, China has issued multiple directives supporting the development of blockchain technology,” said the editorial.
“There is no necessary relationship between the development of blockchain technology and digital currencies,” said Guo Feng (郭峰), vice-director of Beijing’s Zhongguancun Blockchain Industry League (北京中关村区块链产业联盟) to Xinhua. “Digital currency is only one area of application for blockchain technologies.”
“Regulation and handling of risk does not at all mean that we are rejecting innovation,” said Yang Dong (杨东), chair of the Fintech and Internet Security Research Centre of Renmin University (中国人民大学金融科技与互联网安全研究中心). “The current suspension of virtual currency trading platforms does not at all conflict with vigorous blockchain development.”
The editorial arrives following the suspension of a number of blockchain-related shares by both the Shanghai and Shenzhen Stock Exchanges, as well as the issuance of official warnings to investors about the perils of speculative investment.