China state paper urges calm after blockchain stocks, bitcoin soar

FILE PHOTO: Small toy figurines are seen on representations of the Bitcoin virtual currency displayed in front of an image of China's flag in this illustration picture, April 9, 2019. REUTERS/Dado Ruvic/Illustration

SHANGHAI (Reuters) - Chinese state media urged investors to remain rational and not take Beijing’s support for blockchain as a boost for virtual currencies, after comments by Chinese President Xi Jinping drove up shares in blockchain-related firms and the price of bitcoin.

Xi said last week that China should accelerate the development of blockchain technology, a digital ledger that forms the backbone of many cryptocurrencies such as bitcoin. His remarks sparked a rush into the shares of firms engaged in, or believed to be engaged in blockchain or digital currency-related businesses.

“Blockchain’s future is here but we must remain rational,” the People’s Daily newspaper, which is published by China’s ruling Communist Party, said in a commentary late on Monday.

“The rise of blockchain technology was accompanied by that of cryptocurrencies, but innovation in blockchain technology does not mean we should speculate in virtual currencies,” it said.

Traders from three Chinese brokerages also told Reuters that they received a notice from the Shanghai Stock Exchange on Monday which said, “for any blockchain-related (topics), we ask listed companies to make statements based on facts and not make any exaggerated claims or create vicious hype”.

The Shanghai Stock Exchange did not immediately respond to a request for comment.

The government cracked down on the country’s cryptocurrency industry in 2017 with regulators banning the practice of creating and selling virtual currencies or tokens and shutting local cryptocurrency trading exchanges, saying they were facilitating illegal fundraising and pyramid schemes.

Chinese officials, however, said at the time that research into blockchain technology was still encouraged although Xi’s comments were the first time Beijing had publicly thrown such support behind the sector.

Beijing is also creating its own central bank-issued digital currency to cut the costs of circulating paper money and boost policymakers’ control of money supply.

Reporting by Brenda Goh in Shanghai and Cheng Leng in Beijing; Editing by Jacqueline Wong and Giles Elgood