China’s blockchain frenzy, which sparked rallies in an array of companies, has catapulted one academic into the limelight.
Meet Chen Chun, a 63-year-old computer-science professor and an expert at a government-backed think tank. At a meeting last week, it was his job to brief Chinese President
and other senior officials at the Communist Party’s Politburo on the merits of blockchain—the open-ledger technology underpinning cryptocurrencies like bitcoin.
After Mr. Chen’s briefing, Mr. Xi announced that China should speed up research into blockchain, according to a report released late last week by the country’s official Xinhua News Agency.
While Beijing has previously been skeptical about cryptocurrencies, some investors and experts had expected cautious support for blockchain technology as part of a broader competition with the U.S. over financial firepower. China’s central bank is also in the midst of developing its own digital currency. Yet the fact that such an endorsement for blockchain came from Mr. Xi himself took the market by surprise.
On Monday, stocks that had even a tangential connection to blockchain soared. The share prices of more than 150 blockchain-related listed companies were forced to suspend trading because they hit the upper 10% daily limit allowed in China’s stock market, according to data provider Wind.
The price of bitcoin also jumped by about a third and briefly topped $10,000 after Mr. Xi’s comments were publicized, before falling back in recent days. The world’s most popular cryptocurrency recently traded around $9,100, according to research site CoinDesk.
For many of those companies, their rallies lost steam throughout the week. An index that tracks blockchain-linked stocks in mainland China rose just 3.1% for the week, after initially rising nearly 9% on Monday alone.
“This is classic speculation among retail investors,” said Tony Gu, founding partner at NGC Ventures, a blockchain investment fund. “When you see rallies like this, the trend almost always dies off because there’s no substance to it.” He said the vast majority of companies claiming to have blockchain exposure don’t actually make any money off the technology.
Among companies that maintained their share gains were some with ties to Mr. Chen or companies he has had stakes in.
One of them is Insigma Technology Co., whose shares rose 26% over the past week. Mr. Chen co-founded the company in Hangzhou in eastern China decades ago; he left it in 2014. Insigma announced on Wednesday it holds a 2.8% stake in a private company Mr. Chen established two years later, Hangzhou Qulian Technology Co.; it didn’t disclose whether Mr. Chen still holds stakes in Insigma.
Another winner in this week’s rally is property developer Xinhu Zhongbao Co., which said in a Thursday filing with the Shanghai Stock Exchange that it owns nearly half of Qulian. It surged by the daily 10% limit all five days. Its market cap is currently $5.7 billion, according to FactSet, up from $3.4 billion a week ago.
There is no indication Mr. Chen directly profited from the market’s sharp rally. He couldn’t be reached for comment.
Mr. Chen’s connection with these companies is well-known in the industry, four blockchain and cryptocurrency investors told The Wall Street Journal.
Mr. Chen was listed in 2017 by China’s Ministry of Science and Technology as a member of an artificial-intelligence-strategy advisory committee, which was designated to support the country’s megaplan for high-end manufacturing development, dubbed “Made in China 2025.”
Investments are intricate in this knowledge-intensive industry, and often involve scholars and experts. According to public filings, Mr. Chen is a shareholder of at least four private companies and chairs the board of another two besides Qulian.
Qulian partnered with several state-owned enterprises including the Shanghai Stock Exchange and the power giant State Grid to develop blockchain platforms. It also runs research projects with Zhejiang University, where Mr. Chen directs a blockchain research center.
Chinese state media have warned about the risks of speculation in the blockchain business. Investors, meanwhile, worry that speculators might use the blockchain push to step up practices such as shadow lending or cross-border transfers that could eventually trigger a regulatory crackdown and hurt the industry as a whole.
The multiple stock-exchange filings this week by Insigma and Xinhu Zhongbao, in which they clarified their associations with Mr. Chen’s company, were an indication of their desire to stay ahead of speculation around their dramatic market-cap gains.
—Raffaele Huang contributed to this article.
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