Last updated on May 7th, 2022.
In fact, China has been clamping down on all crypto-related services since 2013, forcing the country’s first cryptocurrency exchange, BTCC, to shut down. But things have been more tense in recent times, when a ban on mining and investment from the government has forced many Ethereum and Bitcoin miners to commit to leaving.
This May, China has just introduced a ban on mining and providing services related to cryptocurrencies, aggressively wiping out exchanges on search engines, even letting the police in if necessary.
According to CoinDesk, many social media accounts of influencers, news sites and bitcoin mining pools have been taken down. Chinese users are increasingly worried when they cannot access major cryptocurrency exchanges such as Binance, Huobi, OKEx on Baidu and Weibo. The only search results returned were “in compliance with relevant laws, regulations and policies, search results are not displayed”.
On social networks also began to spread many bewildering tweets. Some investors shared that they were summoned by the local police and warned of the risks of trading with cryptocurrencies. One person said he was asked to delete trading apps on his phone. Another found it extremely confusing when he was ordered by the police to sell all his crypto assets.
More seriously, a series of coin mining factories have been shut down, including the one in Xinjiang that has also stopped working. Xinjiang has the highest bitcoin mining capacity (hashrate) in China, accounting for 36% of the Chinese hashrate and 23.3% of the global hashrate.
Not letting the public stir for too long, the three Chinese banking and internet financial regulators themselves issued a joint statement explaining:
“Recently, the price of cryptocurrencies has increased and decreased continuously, money speculation activities have been increasing. Virtualization tends to increase again, which can cause serious damage to investors’ assets and disrupt the normal economic and financial order.”
In addition, bitcoin mining consumes too much electricity and emits a large amount of carbon, so this ban is also an environmentally friendly direction. Bitcoin carbon emissions researcher and Tsinghua University professor Guan Dabo said:
“This emerging industry does not contribute much to the Chinese economy. It consumes too much energy, but benefits are not worth it”.
Certainly everything that happens in China has a direct impact on the bitcoin market, as China accounts for a quarter of the global hashrate (aka hash rate or bitcoin mining capacity). As observed by statistician Willy Woo, hashrate and bitcoin price have always had a similar relationship.
In April 2021, a few incidents in China alone caused the bitcoin market to fluctuate. Mining accidents and power outages in Xinjiang disrupted mining pools, causing global hashrate to drop by 30%, bitcoin price from $63,000 to $50,000.
Most recently, the government’s bitcoin ban has caused bitcoin to climb deeper. Just after the announcement of three Chinese banking and financial regulators, the bitcoin price plummeted from over $45,000 to $43,500.
As of mid-May 2021, after China’s ban and Elon Musk’s stormy tweet, investors have sold off $1 trillion in crypto assets. However, there are still fish that swim against the current.
An example is Charles, a real estate consultant living in Shanghai. Despite losing up to 11 million USD in just 3 days, Charles is still optimistic:
“For me, this is just returning the profit I made a few months ago. My investment vision is 10-20 years”
A Beijing-based tech worker, Peter, thinks so too:
“It won’t matter if the investments go back to zero. Who knows, maybe one day they will bring wealth?”.
Peter initially invested 20,000 yuan, his account quickly grew to 100,000 yuan, then only 14,000 yuan in a few days.
China was once home to bitcoin miners, but when the government introduced a ban on mining, they had to find new lands. The destinations for these miners are cheap electricity, such as Central Asia, Eastern Europe, America and Northern Europe.
Jiang Zhuoer, founder of BTC.TOP mining pool posted on Weibo: “In the long term, most of China’s crypto mining rigs will be sold overseas, as Chinese authorities are blocking the operation. mined here”. BTC.TOP also said their new destination is the North American market.
Agreeing with that idea, De La Torre, vice president of Pooling in Hong Kong, said:
“We don’t want to face a new kind of ban in China every year. So we are trying to diversify the global mining hash rate and move to the US and Canada.”
This is difficult to say, at least in the short term, some regions cannot receive a large number of Chinese miners, due to severe electricity shortages.
In February 2021, Iranian cities frequently experienced sudden power outages. When investigating, Iran discovered that Chinese miners were migrating more and more, because it was the dry season and had to wait until the rainy season in China to have electricity, while Iran’s electricity price was 3 times cheaper than America and 5 times more than China. The government was then forced to close a number of licensed mining pools to provide electricity to hospitals, shopping malls and households as the Covid-19 epidemic forced them to stay at home more.
However, one issue that greatly worries residents is that if the government pours a lot of money into projects to renovate the electricity system, will they have to pay higher taxes.