China’s Love-Hate Bitcoin Drama Ends Badly

Watching the cryptocurrency game play out in China, it’s hard not to think about Charlie Brown, Lucy and the football.

Charles Schultz’s “Peanuts” cartoon says more about the herd behavior of crypto enthusiasts than meets the eye. Every time, Lucy convinces Charlie she’ll hold the ball for him to kick. Each time, she yanks it away at the last second, with Charlie landing flat on his back pondering his gullibility. Bullishness on bitcoin and its peers often seems that way.

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China, of course, is Lucy here. In recent years, no country seemed more enthusiastic about crypto assets—both mining and trading—than China, where the first wave of important exchanges popped up. Time and time again, though, President Xi Jinping’s regulators have yanked away the market’s growth and potential—often quite suddenly.

Now, it seems as if Xi’s team wants to hide the ball for good. After banning mining and trading, it’s going after the fintech and retail giants that might give crypto holders the impression they could actually do something with their wealth.

The People’s Bank of China is rolling out its own digital currency in the months ahead. In the meantime, it is ordering Ant Group and four huge state-owned banks to crack down even further on transacting in privately created digital assets. When Beijing is summoning Agricultural Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Postal Savings Bank of China to sever ties with crypto assets, the market is facing a period of existential soul searching.

The what of China’s move against the crypto world is obvious. The why, less so. It’s hard not to see this as the financial empire that supports and enriches the Communist Party striking back. And reasserting itself in ways that auger poorly for the direction of reforms in Asia’s biggest economy.

The role of Ant here, by far Asia’s most watched fintech behemoth—and this goes too for the crypto crackdown—seems no coincidence. Few global chieftains have had a tougher eight months than Alibaba Group founder Jack Ma, who set the Ant juggernaut in motion.

On October 24, Ma gave what might be recorded in posterity as the costliest speech ever given. That day in Shanghai, Ma seemed to forget that in China, the boards of Alibaba and Ant don’t really answer to shareholders but to Beijing. The epic fallout from China’s most famous innovator saying aloud that China’s regulators don’t understand the internet and calling the country’s state-banking giants “pawnshops” was fast and furious.

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Within days, Ant’s hotly awaited $35 billion initial public offering, to be history’s biggest, was off. That was as much a blow to Ma’s inner circle as China investors. In 2014, Ma listed Alibaba in New York. At the time, it was the biggest IPO ever and announced China’s arrival as a major tech disruptor.

In November 2020, though, Ma planned to take Ant public in Shanghai and Hong Kong, leaving Wall Street pulsating with envy. That was, until Chinese officials pulled the plug.

The conventional wisdom is that Beijing sidelined Ant to rein in financial risk—a “time out” of sorts to strengthen China’s regulatory framework. But Ant’s plans were well publicized before Ma’s speech, including the IPO prospectus.

Surely, China’s leaders knew on October 23 what Ma was planning before he said, a day later, that “today’s financial system is the legacy of the Industrial Age. We must set up a new one for the next generation and young people. We must reform the current system.”

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The more likely story here is that Ma, by ruffling feathers, gave regulators the chance they’d long sought to clip his wings. And those of Ant, whose ambitions to turn China Inc. on its head became a major worry for Beijing. Many owe their power—and personal fortunes—to the state sector staying at the center of the economy.

Ant was about to disrupt things in epochal ways. Early on, fintech companies were to be middlemen between lenders and consumers, not institutions that might need to set aside capital buffers. Yet Ma’s ambitions to expand from payments to insurance to investments and other pursuits could upend China Inc. in tantalizing ways, particularly as peers follow suit.

Suddenly, there would be valid questions about where this fintech revolution leaves Agricultural Bank of China, China Construction Bank and Industrial and Commercial Bank of China. Who needs sprawling legacy banks when smaller, scrappier finance startups are springing up to modernize the mainland banking business. What if the Ant-Alibaba universe wanted to issue its own digital currency, akin to Facebook’s hopes for a “Diem” blockchain-based payment medium?

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The use of private currencies that could be used to evade detection, taxation and overseas capital flows are a foundational risk to Beijing’s sense of control. As China’s Big Tech industry expands into every corner of mainland finance, it will collect reams of data—and influence—in a nation where the government is used to doing the surveillance.

This threat explains why it’s no longer just Ant in harm’s way. Dozens of Davos-attending Chinese tech billionaires have also been put on notice. This dragnet includes WeChat operator Tencent, internet search giant Baidu and myriad other household names.

Nothing threatens China’s top-down system more than cryptocurrencies which are essentially encrypted money flows. So expect Lucy–China—to continue to play with crypto asset enthusiasts for the time being. But there should be no confusion about how Beijing’s love-hate drama with bitcoin will end. Badly.

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