Explaining bitcoin’s dazzling rise has always been a fool’s game. Scarcity (bitcoins are limited by design to 21 million), gambling gone mad, utility, inflation hedge, global market acceptance, voodoo. All these possibilities and more have been cited for the cryptocurrency’s ability to mint thousands of new millionaires each week.

Here’s another theory: China’s slowing economy and its crackdown on the rich are behind bitcoin’s recent surge.

Fortunes are flowing out of China, and why not use bitcoin BTH24 as the funnel? It is easy to buy if you know how to work the system – bitcoin is technically illegal in China. It is also becoming a global brand, and we all know that Chinese investors and consumers love global brands. China is Porsche’s biggest market and one of Ferrari’s biggest, for instance.

Bitcoin has been on a tear. On March 5 it hit US$73,800, topping its 2021 record of US$69,000. It was conceived in 2008 and, in its early days, could be had for a cent. The coins are highly volatile, but the overall trajectory has been up, up, up after the collapse of the crypto market in 2022.

In December, one bitcoin was worth US$42,000. The peak price represents a gain of 75 per cent in only three months, though it has dropped about 15 per cent in the past few days. Still, bitcoin has been one of the world’s top-performing assets in the past year. FOMO – fear of missing out – no doubt lured hesitant investors and outright speculators into the market, even though many, perhaps most, have no idea how crypto works or that it may not be as democratic, decentralized, anonymous, safe and useful as advertised a few years ago.

For any crypto skeptic or those who grew up thinking that a real currency was a piece of paper decorated with some dead guy’s face, the rise of bitcoin and its rivals is a mystery.

Gallander and Stadelamann: Contra Guys: Bitcoin does have real worth – assuming this condition is met

There was a quaint theory that legal currencies were essentially a political construct, with gold-backed currencies long gone. Money is generally not considered money unless it is a means of exchange, a store of value, a unit of accounting – and governments accept it for tax payments so they in turn can pay their suppliers and employees. You cannot pay your taxes with bitcoin or any of its rivals. Fiat currencies would not be worth the paper they’re printed on without a government’s insistence that they be used to pay tax obligations. That El Salvador and the Central African Republic adopted bitcoin as legal tender hardly inspired confidence.

At points, sheer silliness triggered more skepticism about crypto’s rise. Take the launch a couple of years ago of a cannabis non-fungible token that one tech publication seriously described as “a new community that exists in the heady intersection between cannabis, crypto and the Metaverse.”

Crypto’s real-world benefits are still minuscule to non-existent, though criminals love to use the currency to launder money. Cryptocurrencies often get stolen, and fraud and deception cases are sometimes spectacular. Sam Bankman-Fried’s crypto exchange FTX and sister company Alameda Research collapsed in 2022 with a US$9-billion hole in FTX’s balance sheet. He awaits criminal sentencing.

Still, bitcoin and other big digital currencies have soared to dizzying heights in recent months. Their climb cannot be explained solely by investors’ probably misguided belief that crypto will soon make the traditional financial system redundant or the recent regulatory approval in the United States of bitcoin exchange-traded funds. Fear and loathing in China seem to be propelling the rally.

The Chinese economy has slowed, and a collapse of the highly indebted property market may be imminent. This week, Chinese property giant Evergrande and its founder were accused of a US$78-billion fraud, and investors are bailing out of other developers. At the same time, inordinate numbers of wealthy executives are vanishing or landing in prison.

The list of the disappeared has grown since 2021, when Chinese President Xi Jinping called for “common prosperity,” widely seen as a warning to tycoons to scale back their greed-a-thons or face the consequences. Billionaire Alibaba founder Jack Ma inexplicably disappeared for many months in 2020 and 2021. Billionaire Chinese-Canadian businessman Xiao Jianhua was taken from a luxury hotel in Hong Kong, vanished for several years and, in 2022, was sentenced to 13 years in prison for fraud.

The Guardian recently reported that the crackdown on Chinese billionaires, sluggish growth and waning stock markets are triggering an enormous outflow of funds from China. In the first half of 2023, there was a shortfall of US$19.5-billion in China’s balance of payments – an indicator of capital flight. The true figure may be many times higher. Mainland Chinese are snapping up luxury condos in Singapore and elsewhere in great numbers, and immigration consultants say many thousands of wealthy Chinese families are leaving the country.

Proving that wealthy Chinese investors are using bitcoin to hedge their wealth is difficult, though there are indications. Chinese crypto investors made US$1.15-billion last year, according to blockchain research firm Chainalysis of New York, which also said Chinese crypto transactions were soaring. There can be little doubt that their bitcoin purchases added momentum to the price. The question is what will happen to bitcoin when they bring their money back home.