Sara Hsu
If it wasn’t clear before, Chinese regulators are looking even more disdainfully upon cryptocurrency at present. China recently ordered cryptocurrency mining operations in Sichuan province to shut down and told several payment firms and major lenders to crack down on cryptocurrency speculation. China had already banned cryptocurrency transactions and initial coin offerings (ICOs), and cracked down on mining operations in the provinces of Xinjiang, Inner Mongolia, and Yunnan.
On June 21, China’s central bank urged Alipay and major banks, including the Industrial and Commercial Bank, the Agricultural Bank of China, China Construction Bank, the Postal Savings Bank of China, and the Industrial Bank, to ban cryptocurrency speculation. Alipay, recently a target of government anti-trust and financial regulation, quickly announced on Weibo that it would immediately remove ties to anyone participating in virtual currency transactions.
Mining firms have also been forced to come to terms with new restrictions. The crackdown on mining in Sichuan is being carried out through electricity companies, which have been told to terminate mining operations. Twenty-six potential mining firms were targeted for inspection and rectification.
The largest crypto mining provinces are Sichuan, Xinjiang, Inner Mongolia, and Yunnan, and the new restrictions ensure that China is will no longer be the largest cryptocurrency mining country in the world. In response to cryptocurrency mining bans, mining operations have considered moving out of their home provinces and sometimes even the country. Already, the cryptocurrency exchange Huobi has shut down its mining hosting services in China, and crypto mining pool BTC.TOP has halted its operations. Bit Mining has jointly invested with a company in Kazakhstan in the establishment of a cryptocurrency mining data center.
Some experts believe that miners are likely to move to North America and Central Asia, where power is inexpensive and regulations do not prohibit mining, although others, including the CEO of BTC.TOP Jiang Zhou’er, believe that mining operations will shift to small or medium-sized operations. Transferring mining operators follow cryptocurrency exchanges that were forced to move abroad in 2017.
In 2013, China’s central bank banned financial institutions from engaging in bitcoin transactions. In 2017, the central bank and seven ministries issued a regulation halting ICOs and cryptocurrency exchanges due to allegations of illegal financing activities. The current crackdown on mining moves even further toward eradicating cryptocurrency activities from China’s economy.
Chinese regulators say that cryptocurrency transactions and ICOs are frequently associated with fraud. To prove this point, public security departments in 23 provinces have pinpointed more than 170 criminal groups using cryptocurrencies for money laundering. The criminals have been accused of registering personal bank cards backed by stolen funds on virtual currency trading platforms to purchase cryptocurrency. The criminals then repeatedly exchanged cryptocurrencies and, afterward, transferred to a virtual currency wallet belonging to the criminal group. Some criminals have been associated with illegal gambling websites, which frequently support the use of cryptocurrencies.
As a result of the new regulations, the prices of mining equipment, including both old and new models of graphics processing units (GPUs), have declined. Bitcoin prices have also plummeted on the negative news, falling by half since reaching a record high of $63,000 in April.
While there might have been some confusion in previous years about China’s stance on crypto, it’s pretty clear now that Chinese authorities are going to continue trying to eradicate cryptocurrency activities on both the supply and demand side. As a result, it is likely to take some time for operations to shift to other countries. However, we are already seeing an improvement in local sentiment on crypto. One indicator of this is the exchange rate between China’s RMB and the stablecoin Tether, which declined after the government announcement earlier this month but is now gaining ground, according to crypto data platform Feixiaohao.
Even though China has imposed many restrictions on cryptocurrencies, there is still room to regulate further. The final frontier is regulating individual holdings of cryptocurrencies. While some crypto investors have stated on social media that they were recently warned by local police not to invest in cryptocurrencies, a widespread prohibition on individual holdings of cryptocurrencies has not yet been implemented. If experience with China’s shadow banking or underground banking sectors is any guide, such activities are likely to continue until they are prohibited outright.
However, the message is clear: Chinese authorities hate crypto. Soon, the sovereign digital currency will be rolled out, but as it is a stablecoin without an upside, the digital yuan is unlikely to slake investors’ thirst for returns. Only additional regulation and careful police monitoring can force more investors to stop putting their money into crypto.
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