In July, the State Power Corporation of China formally requested all its customers not to use electricity to mine any cryptocurrency in all country regions. This once again confirms that crypto mining in China has become entirely illegal.
The first bans faced by Chinese miners began on May 25 this year. Then restrictions on mining were introduced by the largest region in terms of cryptocurrency mining — Inner Mongolia. After that, the Bitcoin rate fell by 8.5%.
Nevertheless, it seemed to many market participants that the China crypto ban was temporary and it was too early to beat an alarm. In early June, a mining China crypto ban in Sichuan and Qinghai provinces was added to the statement. By mid-July, new rules were also introduced in the provinces of Anhua, Henan, and Guangxi.
What the regulators did. Did China ban crypto?
On May 18, The National Internet Finance Association of China (NIFA), China Banking Association (CBA), and Payment & Clearing Association of China made a joint statement. They referred to the statement of the People’s Bank of China “on the need to prevent the risk of hype in transactions with virtual currency.” According to the regulator, financial institutions should seriously strengthen their social responsibility and not use cryptocurrency to determine prices for goods and services and restrict any crypto transactions.
The list of operations to be terminated included the purchase of cryptocurrencies and any related investment activities, including trading and exchange.
On May 21, this position was confirmed by the Financial Committee of the State Council of the People’s Republic of China. During the meeting, one of its Vice Premiers, Liu He, called for measures to be taken, including against Bitcoin mining. However, at that moment, doubts still remained that it would come to a complete Bitcoin mining ban.
At the end of June, the course to ban mining and cryptocurrencies in the country was finally confirmed. The People’s Bank of China held substantive consultations with banks and payment systems, which confirmed its early decisions. The largest Chinese financial institutions were informed of the need to stop speculative trading in cryptocurrencies, in particular Bitcoin. These financial institutions include the Industrial and Commercial Bank of China, Agricultural Bank of China, Construction Bank of China, Postal Savings Bank of China, Industrial Bank, and Alipay.
According to the regulator, operations with cryptocurrencies have the following risks:
- Illegal cross-border transfers (money withdrawal from China)
- Money laundering
- The risk of losing control and savings
In fact, financial organizations were obliged to prohibit and block any transactions related to the purchase and sale of cryptocurrencies, including, first of all, p2p and OTC transactions. In particular, the regulator instructed banks to “mobilize additional technological resources” to improve ways of tracking and monitoring such transactions.
Financial institutions must also comply with the regulatory requirements contained in the Bitcoin Risk Protection Notice and the Financial Risk Prevention Notice. Representatives of financial organizations accepted these conditions and promised to prohibit trading and exchanging cryptocurrencies on their platforms.
Did China ban crypto? Consequences for the mining industry
The decision of the Chinese regulators can be called a disaster for the mining industry. A significant part of local miners worked legally and brought profit to the country’s economy. However, in recent years, China has begun to lose ground in the mining industry. The country’s total share in the global bitcoin mining industry has steadily declined in recent years: from 75% in September 2019 to 46% in April this year.
The China crypto ban is directly related to the launch of the digital yuan by the People’s Bank of China. The regulator stated its position on this issue in a document that was published on July 16. The decisions of the Chinese authorities led to the fact that miners began to flee the country. The most popular destinations for miners to move from China are Kazakhstan, the USA, Canada, European countries, and Russia. At the end of June, Bit Mining already transported the first batch of 320 miners to Kazakhstan.
Another important consequence of the ban on mining and cryptocurrencies in China was the fall in prices for mining equipment. The manufacturer Bitmain was forced to stop selling it because of this.
The China crypto ban negatively affected the cryptocurrency market dynamics, intensified its correction, and became a big challenge for Chinese miners. But, at the same time, there are also positive aspects to be found.
Firstly, more renewable energy will now be used for Bitcoin mining since a significant part of the electricity for mining in Inner Mongolia and Xinjiang provinces were generated by thermal power plants. In addition, the mining market is becoming more decentralized. Now equipment for mining cryptocurrencies is located in different countries. It means that it is unlikely that more than 50% of the Bitcoin hash rate will be concentrated in any ONE country.
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