China has taken a hard stance on cryptocurrencies and mining. The news surrounding the country’s war against Bitcoin has caused a massive decline in the flagship cryptocurrency and the cryptocurrency market as a whole. In just a month, Bitcoin has crashed from its all-time high of approximately $65,000 to a level where it is currently struggling, just below $33,000. Investors are beginning to wonder why China has this much influence over the price of Bitcoin.
China became the hub for cryptocurrency mining entrepreneurs. As supply plays a significant role in determining a currency’s price, within the cryptocurrency ecosystem, China controls the supply for prominent cryptocurrencies through mining operations. Approximately two-thirds of all bitcoin mining operations are based in China. Bitmain, which is responsible for 39% of all mining operations and runs the world’s two largest mining pools, is a Chinese company. It pioneered the ASIC chip, which runs most bitcoin mining systems, and is referred to as “the most influential company in the bitcoin ecosystem” by some.
Even though there has been much outcry about Bitcoin’s energy consumption, Chinese miners made a tidy profit due to high prices. This is now a thing of the past as the Chinese government is waging war against Bitcoin and cryptocurrencies in general.
Where did all the FUD start from?
Some have traced the FUD (Fear Uncertainty and Doubt) to as far back as 2017. But in more recent times, China’s current war against the cryptocurrency market only started about a month ago, when Chinese financial industry bodies namely, The National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China declared that financial and payment institutions must not conduct cryptocurrency-related businesses. This sent Bitcoin tumbling from an all-time high to as low as $30,000 on the 19th of May, 2021.
READ: Iran bans Bitcoin Mining
The attack did not stop there as the country moved to attack bitcoin mining with the State Council, or cabinet in China launching an attack to crack down on Bitcoin mining and trading, just a few days after the ban on crypto-related financial and payment services. The recent attacks on Bitcoin miners in China have caused Bitcoin’s computational power also referred to as hashrate to slump 50% since its peak level last month.
The country also went after cryptocurrency influencers, taking out cryptocurrency influencers on Weibo. The social media platform greeted cryptocurrency influencers with a message saying that they have violated Weibo guidelines and “relevant laws and regulations.” You heard that right! Even talking about cryptocurrencies is now illegal in China.
On Thursday, miners in Ya’an, one of the major crypto mining hubs in China’s Sichuan province, received an inspection notice that required shut-downs. Friday, Wu Blockchain reported that Alibaba Cloud, China’s largest cloud service provider, made calls to cryptocurrency and mining companies registered in China regarding potential domain name cancellations due to regulatory requirements.
Today, the Agriculture Bank of China, the world’s third-largest bank by assets, is set to implement Beijing’s firm anti-cryptocurrency measures and rigorously vet its clients to ensure they are not engaged in any form of illegal activities involving crypto transacting, trading or mining. The bank stated, “Institutions must comprehensively investigate and identify virtual currency exchanges and over-the-counter dealers’ capital accounts, and cut off transaction funds payment links in a timely manner; they must analyze the capital transaction characteristics of virtual currency trading hype activities […] and ensure that relevant monitoring and handling measures are implemented.”
Why this is Good for Bitcoin
So, if China is responsible for two-thirds of the mining of Bitcoin, how is its harsh clampdown on crypto any good for Bitcoin? Here are a few reasons:
- Decentralized Hashrate
Now that mining is illegal in China, miners will be moving their operations to other countries around the world. Countries like America and El Salvador are good environments for Bitcoin miners to set up shop as legislations have favoured mining operations.
Now the rhetoric about Bitcoin being China’s way of controlling the world is debunked as the mining will be more decentralized and less concentrated in a particular country. Images of Chinese logistics firm Guangzhou airlifting 3,000kg of mining equipment to the U.S have surfaced online.
- Chinese authorities’ actions against Bitcoin will no longer be a risk
As highlighted earlier, the influence Chinese authorities hold over the price of Bitcoin is high and has affected the market greatly. With mining being moved out of the country, Chinese actions will have less impact on the asset which would ultimately stop affecting the price.
- Mining will move to areas that are focused on renewable energy
The headline about Bitcoin mining, being harmful to the environment has also caused the price the decline. Countries like America and El Salvador have been making significant strides to make sure mining done within these countries is done with clean and renewable energy.
In the case of America, Michael Saylor, CEO of MicroStrategy started the Bitcoin Mining Council in America to promote the use of clean and renewable energy when it comes to mining after Elon Musk, CEO of Tesla, shared concerns about the environmental impact of Bitcoin mining. In El Salvador, provisions are being made for Volcano-based mining which is 100% clean energy with zero emissions.
China being a major player in the cryptocurrency ecosystem is becoming a thing of the past. The country had several levers through which it controlled the pricing of cryptocurrencies. These levers are now being stripped away through the actions of the Chinese government. Bitcoin and cryptocurrencies are now looking to head into a more decentralized future that advocates for the use of clean and renewable energy when it comes to mining, thereby making the space an eco-friendly environment.
In the short run, at least until the hashrate stabilizes, Bitcoin will continue on the bearish trend. In the long run, as news from China have less impact on the outcome of the cryptocurrency market, the ecosystem will be set to take on new all-time highs.