More details on China's upcoming crypto emerge

By Shuyao Kong

[Editor's note: Starting today, our correspondent, Shuyao Kong, will be writing a weekly column about crypto in China, called Da Bing. (Don't worry: we'll tell you what "da bing" means, too.)] 

When Zhou Xiaochuan talks, people listen. The former—and longest-serving—governor of the People's Bank of China  is an elder statesman and sort of like the country's Alan Greenspan. He gave a 30 minute talk in China Friday on “Digital Currency Challenges Global Financial Infrastructure and Management” which was a lot more exciting than its academic-sounding title.

Many have interpreted Zhou's talk as another hint that China is about to issue its own state-bank digital currency. Such speculation might indeed be warranted given all the recent noise. But beyond evangelizing for PBoC’s digital currency, his speech also revealed the big-picture approach the PBoC is taking in designing its state-backed cryptocurrency. 

According to Zhou: The central bank-backed digital currency is not solving a technical problem so much as a coordination-management problem.

For instance, he cited international remittance as a place where users, local governments and exchanges are at odds.  He said: “Many countries regulate capital outflow, many have issues with capital inflow, and in addition, when it comes to exchanges, there’s a global issue of coordination.”

In other words, whether it’s Facebook’s Libra or PBoC’s own digital currency, any crypto solution will inevitably face the challenge of people/country-coordination.  Since that’s the case, Zhou concluded: 

• PBoC will focus on the domestic market. 
• China will not legitimize any private sector crypto projects.
• Maintaining control is core to PBoC’s crypto scheme.

Fun unrelated fact: Before the ICO craze in 2017, Zhou publicly described bitcoin as an asset class. He also claimed that the government would not consider banning bitcoin.

Top 3 other things that happened in China this week

#1: Bitmain Drama: Starring Jihan Wu and Micree Zhan—with a special cameo appearance by the Amazing Dr.Yang!

Micree Zhan, the co-founder, CTO and largest shareholder of multi-billion-dollar mining company Bitmain, was ousted in a coup by his co-founder Jihan Wu. After Wu took control of the steering wheel, Micree issued a statement on WeChat stating that he will retaliate via legal action. 

In the midst of that drama, Bitmain filed in the U.S. for an IPO, on the heels of its next biggest competitor, Canaan Creative. (Both companies had tried to go public earlier but were forced to withdraw during the crypto crash.) As if this drama wasn’t complicated enough, on Friday, Dr.Zuoxing Yang—the brains behind Bitmain’s popular S9 mining rig, who left to be CEO of rival MicroBT, was arrested on charges of IP Theft. 

Behind the big screen, the drama revealed the real dilemma Bitmain faces. Micree insists on incorporating AI in its chip design, which could be the key differentiator Bitmain needs, as it faces competitors with better tech. But AI will add extra cost, and crypto prices have not yet fully recovered. Meanwhile, competitors such as Yang are slowing eating into Bitmain’s market share. Any wrong move could lead to the mining king being dethroned. 

#2: No more free lunch for Hong Kong's crypto exchanges 

It’s time for crypto exchanges that benefited from Hong Kong’s lax financial regulations to wake up. The  Securities & Futures Commission of Hong Kong (SFC) published new rules on Nov 6th that will govern exchanges via licenses and mandatory enrollment in a regulatory framework. 

Will it work—or drive the exchanges out of Hong Kong? According to Reuters, many exchanges welcome the idea, but few are making the move proactively. For smaller exchanges, the license means that they can’t operate with retail investors, which account for most of their revenue. Other requirements imposes extra overhead to their business model. 

Thus far, OSL is the first and only—exchange to apply for the license. 

#3: BAT Race: who gets the blockchain greenfield? 

BAT ( Baidu, Alibaba, Tencent) —the Big 3 tech companies of China—are officially in the race to develop and commercialize blockchain technology. At the recent World Blockchain Summit in Shanghai, (which almost got killed a few months ago due to the “winter market,”  aka bear market), every big tech company gave a keynote speech about its blockchain strategy. Common themes included: Permissioned blockchains, trust-based society, financial inclusion and blockchain-based cloud infrastructure. 

Hmmm, that sounds eerily like the same keywords from President Xi’s speech last week. 

Do you know?  In China, the mere mention of “bitcoin” online can attract unwanted attention from censors. So crypto insiders have come up with a darling nickname, which stems from the fact that the digital currency is typically depicted in photos as an orange-ish, round coin: da bing (大饼). That means “big pancake” in Mandarin. 

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