After hitting down hard on the operations of local exchanges last year in September 2017, the Chinese government is now having its eyes on local bitcoin miners present in the country. Just last week, the People’s Bank of China (PBoE) asked the government to impose restrictions and regulations on the use of electricity consumed by the Bitcoin miners.
This triggered a major sell-off in the cryptocurrency markets on Wednesday, with some major currencies correcting heavily. Bitcoin is currently trading below $14,000, according to the data from CoinMarketCap. The total market cap of all cryptocurrencies lost more than $150 billion since the highest value – $833 billions – which was on Sunday, January 7th, 2017 at the press time making $680 billion.
Besides, we cannot leave without mentioning this Monday, January 8, when CoinmarketCap left South Korean exchanges out of its index, hardly affecting crypto rates. This results from the fact that Bitcoin, Bitcoin Cash, and Ripple prices are usually 10-30% higher on South Korean exchanges than on the rest ones.
China remains one of the dominant players in terms of Bitcoin mining activities as a huge number of miners has set their operations at some places in China, where electricity is available at low cost. With the Chinese government is getting involved in control over these activities, it could possibly have a massive impact on the price of Bitcoin.
As per the leaked documents that appeared on Twitter and confirmed by Quartz, the Chinese government is planning for an “orderly exit” for Bitcoin mining operations in the coming week and months because the miners have consumed “huge amounts of resources and stoked speculation of ‘virtual currencies.”
Notice from China special rectification on risks in Internet Finance department to local government to make a plan before Jan 10th – “ lead mining factories quit gradually” #btc #bitcoin #BitcoinMining with Central Bank official Chop. Prepare for the roller coaster!!!! pic.twitter.com/OLv8j1veHb
— ? (@cryptovenus) January 5, 2018
As per the leaked documents, which are issued to the local offices of the internet-finance-regulator, authorities request to push out cryptocurrency mining operations out of business by using measures, which are linked to electricity, tax, land use and environmental protection. As per Quartz, the local representatives are given strict instructions and asked to submit monthly reports on their progress in removing miners from their areas.
Bitcoin mining involves solving complex mathematical algorithms to unlock more Bitcoins from its network. As the number of Bitcoins getting mined increases, the algorithm gets more and more complex. Miners are also responsible to verify and record transactions on Bitcoin’s underlying technology, the blockchain network. Verifying the transactions also helps miners earn Bitcoin.
Availability of cheap hydroelectric and coal power in few regions of China has attracted many Bitcoin miners to form their base and earn maximum profits. Today, China alone contributes about two-thirds of the total processing power used for Bitcoin mining. Putting a blanket ban on the mining operations is going to significantly affect the operations, thereby reducing the presence of miners on the network.
In such case, the Bitcoin miners will have to completely relocate their operations outside China, which is easier said than done. Moreover moving out of China means paying up higher costs for electricity consumption which would mean less profit to the miners. Russia may be such country, which can provide a safe haven to the miners. However, considering the fact that Russia itself has remained confused over the cryptocurrency operations, this supposition remains a dicey one for the moment.
Following the steps that were taken by the Chinese government, ViaBTC announced the shutdown of its crypto mining contract market sighting the reasons to “control speculation and protect the interests of our investors.” The company further added: “Please finish all your cloud mining contract trading ASAP. Thank you all for your support.”
Another Asian country – South Korea joins China turning to crypto activities’ regulation. The Korean government has recently imposed severe regulations on its exchanges and has asked investors to link their bank accounts with their actual names on the trading accounts. The authorities are carrying out a country-wide drill to see that the exchanges don’t exploit the loopholes if any. This is basically seen as a crackdown on tax payments by investors on their cryptocurrency profits earned.