Bitcoin has been stagnating as China has recently taken multiple measures to ban the cryptocurrency. Last month, Chinese authorities announced that they would intensively crack down on illegal activities related to crypto mining and published a detailed guideline.
In China’s Inner Mongolia region, authorities announced on June 25 that they would punish industrial complexes, data centers and power plants that provide electricity to companies or locations related to crypto mining. The measures include plans to identify and prosecute communications or internet companies as well as individuals involved in crypto mining. According to Chinese blockchain media outlet wu-talk, “China’s Inner Mongolia National Development and Reform Commission is intensifying its crackdown on cryptocurrency mining and increasing the severity of punishment”. The National Development and Reform Commission stated that the reason for the ban on cryptocurrency mining in China was that “the concern about environmental pollution is high and it has a negative impact on the national goal of reducing carbon emissions.” Inner Mongolia is known for its active cryptocurrency mining, accounting for about 8% of the world’s bitcoin mining volume.
After starting with Inner Mongolia, Chinese authorities have also begun to shut down cryptocurrency mining sites in Sichuan, China. The majority opinion among analysts is that the Bitcoin price has not escaped its downtrend as massive withdrawals continue. According to Pengpai, a Chinese media outlet, the Sichuan government ordered on June 18 that “power plants and other power providers should immediately stop supplying electricity to cryptocurrency mining sites. […] Each city government is to do a complete inspection and when a cryptocurrency mining project is discovered, immediately stop operations. The results should be reported by the 25th of this month. Following this order, cryptocurrency media site 8BTC reported “Sichuan mining farm closed in the early morning of the 20th. Miners are going through the darkest moment in history.”
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After the Chinese government’s announcement in May that it would strongly crack down on Bitcoin mining and trading, actions to start enforcing these instructions have been observed in several regions. China’s Sichuan Province has ordered the immediate closure of 26 cryptocurrency mining operations within its jurisdiction. Chinese economic news outlet Securities Daily reported, “A number of mining companies are closing up their mining operations in China. […] The announcement of the cryptocurrency mining and trading crackdown accelerated a domino chain of mining operation closings and there is a movement to relocate the business to the US, Kazakhstan and elsewhere”.
Observers believe that anti-crypto mining regulations in China may become even more stringent. On May 26th, Xinhua reported that “mining and leveraged trading, will become major targets of cryptocurrency regulation in the future. […] “Cryptocurrency mining and leveraged trading are currently the biggest problems in the market, and cracking down on this will emerge as a top priority.” In the same vein, wu-talk, the Chinese crypto outlet, also found that “Inner Mongolia will strengthen its crackdown on cryptocurrency mining activities and increase the severity of punishment”. Chinese economic news, such as Caixin, reported on May 20th that “Starting on the 18th [of May], the Inner Mongolia Autonomous Region in northern China began operating a virtual currency mining location reporting network”. Inner Mongolia is one of the areas where large mining farms are concentrated due to the relatively cheap electricity rates. The Inner Mongolia Autonomous Region’s stated aim is to completely eliminate the local cryptocurrency mining farms to save energy in China. The market is paying special attention to whether these strong measures to drive out mining will be extended to other mining hot spots, such as Xinjiang and Sichuan. Since China accounts for more than 65% of all Bitcoin mined in the world, a complete ban on mining in the country would send a significant ripple effect throughout the industry. Yonhap News explained that “China is moving beyond a ban on new issuance and trading of virtual currencies in the country to ban mining as well.” Shentu Qingchun, CEO of Shenzen-based blockchain company BankLedger offered the following outlook: “[These authority measures] mean that more than 90 percent of Bitcoin mining capacity, or one-third of the global crypto network’s processing power, will be suspended in the short term”.
Bitcoin volatility growing as Chinese financial authorities also tighten crypto-related regulation
The Chinese government is expanding regulation of cryptocurrencies in all directions. Particularly Chinese banks and financial institutions have begun participating in regulating cryptocurrencies, which is putting greater pressure on the crypto market. According to analysis by crypto media outlet decrypt “The Bitcoin price plummeted on May 19th as China’s Payment & Clearing Association cut the number of financial institutions participating in crypto trading in half”. On May 18th, China’s National Internet Finance Association, Banking Association and Payment & Clearing Association released a statement saying “cryptocurrencies have no monetary properties and are not a real currency. They should not be used as currency on the market and are unusable virtual products”. “Chinese financial institutions may not use virtual currencies to set the price of products or services and virtual currencies may not be included in insurance coverage”, the statement continued. After this type of content was spread through the People’s Bank of China’s WeChat, a sudden drop in Bitcoin price was observed.
And financial regulation of cryptocurrencies in China seems to be getting even stronger. On June 21st, the People’s Bank of China summoned officials from five major Chinese banks as well as Alipay, China’s largest electronic payment service, to scheduled interviews and already completed one interview round. On the same day, the People’s Bank of China also instructed officials in the financial sector to “strictly follow the authorities’ guidelines to curb risks associated with cryptocurrency”. The institution also warned that “cryptocurrencies risk destabilizing the economic and financial systems and can be used for illegal activities”. Scheduled interviews by the People’s Bank of China are known as a form of reprimand by the authorities to issue a warning or demand corrective actions. In fact, representatives of financial companies explained that they were instructed to investigate and identify users who have accounts on cryptocurrency exchanges or who trade in over-the-counter markets that day. Additional sanctions have continued to emerge after the statement banning the use of cryptocurrencies in Chinese financial institutions.
Experts are advising extra caution as repeated bad news from China may increase volatility on the cryptocurrency market. Quoting Annabelle Huang, a partner at Hong Kong-based Amber Group, crypto media outlet Coindesk reports: “After China stopped mining operations in Sichuan, some miners had to liquidate their cryptocurrency holdings. […] The mining ban will have somewhat lasting effects going forward”. Park Seong-Jun, head of the Blockchain Research Center at Dongguk University, also said, “As miners exit from China, mining competition is resurfacing around the world. Concerns over large-scale Bitcoin investment products soon being released on the market along with signs that interest rate hikes may be accelerated will likely have an impact on the overall economic situation”. Robert Kiyosaki, famous for authoring the book ‘Rich Dad, Poor Dad’, recently tweeted, “Biggest bubble in world history getting bigger. Biggest crash in world history coming. […] Waiting for Bitcoin to drop to $24 k. Crashes best time to get rich”. Meanwhile, some are voicing the opinion that investors need to be careful as Bitcoin recently entered a bear market. Ki-young Joo, CEO of CryptoQuant, a cryptocurrency data analysis company, is one such voice. On Twitter, he recently analyzed “The Bitcoin bear market appears to be definitive. Too many whales are sending Bitcoin to exchanges.” This view holds that in a bear market, investors should be especially cautious in the short term due to increased Bitcoin volatility.