It’s not only Chinese retail investors who’ve gone bullish on new digital payment systems and currencies such as bitcoin.
Large firms there are also making sizable investments in the blockchain, the technology underlying bitcoin, which hit a two-year high Monday on demand in China, then plunged 10% Tuesday.
A consortium of technology and financial firms in China has made a $60 million investment in the Chinese unit of Circle, a U.S.-based blockchain-payments startup.
The firms include Baidu (BIDU), the Chinese search giant; CICC Alpha, a growth-investing unit of the China International Capital Corp.; the private-equity arm of China EverBright Investment Management Ltd.; CreditEase, an online lender owned by Yirendai (YRD), a Chinese financial services firm traded in the U.S., and IDG Capital Partners which led the round, according to a draft copy of an upcoming blog post from Circle that I’ve seen.
Circle CEO Jeremy Allaire, who also founded video-advertising startup BrightCove (BCOV), which went public in the U.S. last year, and had a previous software company acquired for $360 million, confirmed the investment in a phone interview.
The Circle funding round was led by IDG Capital Partners, one of the first U.S. venture capital firms to invest in China, and also included existing Circle investors Breyer Capital and General Catalyst Partners.
The funding round, Allaire says, like the huge bitcoin trading volumes in China that have come amid stock-market volatility there, shows how the world’s most populous country is well ahead of the U.S. in adopting digital payment systems.
“If you look at the trends, China very well could be the driver of the adoption of block chain consumer services,” says Allaire, whose self-named company was acquired by Macromedia in 2001.
Digital payment services, such as Alipay (a former unit of Alibaba that’s still used on the giant’s e-commerce sites) and a rival used on the WeChat messaging service owned by Tencent, already have hundreds of millions of users.
“That’s why we’re not trying to compete with them,” Allaire told me.
While those services process payments made within popular messaging services in China’s currency, known as the yuan or renminbi (Rmb), Circle runs what is essentially a global Internet exchange bank based on the blockchain, the digital ledger that records bitcoin transactions.
Circle, which operates in the U.S., U.K. and Europe, and hopes to open soon in China, processes those transactions within and between traditional currencies, including the British pound and the U.S. dollar, and digital currencies, including bitcoin rivals such as Ether and Ripple.
“We use the block chain to share value just like Internet protocol lets us share communication,” he says. “Our goal is to build a global, international bank that is instant, global and free. Sending payments should be as easy as sending an email,” Allaire says.
In December, the investment bank Goldman Sachs, which is an investor in Circle, told its clients in a report that the blockchain “could disrupt everything.”
This week, the price of bitcoin soared above $700 amid heavy volumes in China. While many have pointed to the action as evidence that Chinese consumers are taking money out of the country, Allaire says there is another driver.
China investors are getting more sophisticated and diversifying their asset base, says Allaire, who owns bitcoins in his own investment portfolio and who sold his first company just before the dotcom bubble burst.
This column is not written as an endorsement to buy bitcoin, which is volatile and may or may not survive as a currency. Bitcoin has a finite number of currency units, or coins, that must be ‘mined’ by solving difficult computer problems requiring expensive resources.
The run-up in the price also comes before a planned change in the technology which will make mining bitcoin less profitable.
But it’s worth noting that a growing number of major global investors are betting that the technology behind bitcoin will have enduring value, and that China is at the forefront of investing in and using bitcoin and blockchain technology.
John Shinal has covered tech and financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.