The crackdown on mining operations in China will lead to a migration of mining activities to the West. Bitcoin price is down.
In fresh moves, China has renewed its crackdown on the cryptocurrency ecosystem. This has led to the plunge in the prices of several crypto assets including Bitcoin, Ether, and XRP. Global Times estimates that the latest crackdown coupled with the prior actions of regulators within the country has led to the shut down of up to 90% of the country’s hashrate.
Why China Is Cracking Down on Bitcoin and Other Crypto Assets
Cryptocurrencies run on a blockchain network that is averse to control. Combine this with the speculative nature of the market and it’s easy to see why the Chinese government isn’t in support of the revolutionary development. The Communist Party of China has an extreme aversion to speculative enterprises and anything it cannot control.
Owing to its huge power consumption and demand on power grids, there have also been reports of blackouts that resulted because of the mining activities e.g. in Xinjiang in April.
Beyond this, bitcoin mining takes an enormous toll on the environment. According to a study in Nature Communications, mining activities in China would have resulted in 130 million metric tons of Carbon Emission by 2024. Should the government continue to allow mining, it would undermine the Chinese president’s promise to make China carbon neutral by 2060.
How the Crackdown Started?
The cryptocurrency ecosystem is not a stranger to crackdowns. In September 2017, a government-backed working group in Beijing had ordered digital currency platforms in the country to stop transactions. Again in late May, the authorities of Beijing shut down mining operations. Inner Mongolia soon followed them. The result was a 12% plunge in the price of Bitcoin.
On Friday, fresh directives from the People’s Bank of China ordered miners in the Sichuan province to stop all mining activities. In addition, the financial institutions also received directives not to process cryptocurrency-related transactions, including account openings or clearing and settlement. This has led to the drop of up to 12% in the price of Bitcoin from Friday according to Forbes.
China’s latest crackdown on Bitcoin mining exposes the inherent danger of having a majority of the hashrate in a country. Prior to the crackdown by the Communist government of China, China boasted up to 75% of the world’s bitcoin mining capacity.
Implications of the Current Crackdown
The crackdown on mining operations in China will lead to a migration of mining activities to the West and to places with lesser regulatory restrictions like Kazakhstan, Mongolia, and Afghanistan.
Despite this, anxiety and uncertainty flood the cryptocurrency market. Several market observers believe this to portend severe losses soon, particularly if Bitcoin falls below its support levels.
Already, the price of Bitcoin had fallen to $29,750 at the time of writing, according to Coinmarketcap. The observers believe this could lead to a spike in selling activities and further drive the price down.