China Bans Cryptocurrency Transactions and Mining

On Friday, Chinese regulators introduced a nationwide ban on cryptocurrency transactions and cryptocurrency mining. The end result of a years-long crackdown, the transfer was meant to close loopholes in earlier makes an attempt to control cryptocurrency, root out rivals to government-issued cash, and cut back the power consumption of the closely polluting sector. It additionally comes amid Xi Jinping’s long-running anti-corruption marketing campaign and extra latest efforts to reign in highly effective tech-sector companies and monopolistic platforms.

Stock costs for Bitcoin and different common cryptocurrencies nose-dived before recovering slightly. Analysts remained largely optimistic concerning the future vitality of cryptocurrency within the broader international financial system, however in China, the ban paves the best way for greater state control over financial transactions and for the rollout of China’s personal state-backed digital forex. 

The news was announced by the People’s Bank of China (PBOC), in coordination with the Cyberspace Administration of China, the People’s Supreme Court, and eight different authorities our bodies. Elaine Yu and Joe Wallace from the Wall Street Journal reported on PBOC’s notice

Naming bitcoin, ether and tether as examples, the central financial institution stated cryptocurrencies are issued by non-monetary authorities, use encryption applied sciences and exist in digital kind, and shouldn’t be circulated and used available in the market as currencies.

It additionally stated it’s unlawful for abroad exchanges to offer companies for residents in China via the web.

[…] The assertion referred to as for a complete monitoring system, giving native governments “full play” to watch their areas and flag early warnings. It vowed to crack down on “unlawful monetary actions” associated to cryptocurrencies, and examine workers of international cryptocurrency exchanges inside China in addition to others within the trade who continued to promote or present crypto-related companies.

[…] Chinese regulators have anxious that cryptocurrencies’ decentralized, nameless transactions facilitate cash laundering and unlawful capital flight overseas. There are indicators that its resolve to crack down on cryptocurrencies has grown stronger in latest months. [Source]

The ban follows a collection of robust measures by the Chinese authorities to crack down on cryptocurrencies, relationship again 2013, when the federal government prohibited Chinese banks from utilizing Bitcoin. Matthew Fox of Business Insider assembled a broad timeline of recent regulations:

December 2013: China bans banks from dealing with bitcoin transactions […]

September 2017: China orders native cryptocurrency exchanges to stop operations.

The nation banned preliminary coin choices and ordered all home cryptocurrency exchanges to finish operations throughout the nation. The transfer got here amid a robust bull marketplace for bitcoin which finally topped out close to $20,000 in late 2017.

May 2021: China bans numerous monetary establishments and fee corporations from providing crypto companies.

The nation reiterated its prior bans from 2013 and 2017, citing the hazards of speculative buying and selling within the crypto cash, and cemented the ban for numerous fee platforms and enterprise actions associated to cryptocurrencies.

June 2021: China ramps up crypto mining crackdown.

The nation set its eyes on banning cryptocurrency mining with numerous rules in the direction of the sector. Following the brand new guidelines, bitcoin mining instantly moved abroad to extra crypto pleasant international locations, together with the US. China cited environmental issues and extreme power consumption as causes for its new restrictions. [Source]

One motivation for the Chinese authorities’s harsh stance on cryptocurrencies pertains to their monumental power calls for and unfavourable environmental impression. Bitcoin’s annual international electrical energy demand is greater than that of the entire country of Finland. According to researchers at Cambridge University, China’s share of global hashrate, the computing energy wanted to run Bitcoin mining operations, declined from a lion’s-share of 75 p.c in 2019 to a still-impressive 43 p.c in April 2021. Maintaining this degree of power consumption is unsustainable, counting on low cost, coal-powered electrical energy grids in provinces like Sichuan and Xinjiang, which is in direct battle with President Xi Jinping’s long-term commitments to address climate change

Another clarification for China’s crypto ban is that the federal government is clearing house for its personal state-backed digital forex. In April 2020, the People’s Bank of China created and examined China’s new cyber yuan (e-CNY, or DCNY) in a number of pilot applications throughout totally different cities. The new digital forex might have far-reaching financial stability and geopolitical consequences, equivalent to eliminating illicit monetary flows and undermining the efficacy of future U.S. sanctions. It additionally allows the government to reinforce its surveillance state by enhancing the power to trace all particular person transactions of the forex in actual time. Barclay Bram from Wired described how China’s state-backed digital currency fits into the CCP’s data-driven future

“In normal, this does strengthen authoritarianism. Putting the levers of economic energy within the authorities’s palms does improve CCP energy,” says [Center for a New American Security Adjunct Senior Fellow Yaya] Fanusie. However, as he notes, the image is extra nuanced and complicated. “This is a part of a much bigger course of. It’s much less about what the Digital Yuan will do, however extra about what occurs when China turns into extra information pushed, and when the federal government has considerably extra centralised information basically.” Seen on this gentle, the DCNY is a part of a a lot greater plan the federal government has lengthy been pursuing to get a extra detailed image of its inhabitants via huge information. As an article from MIT Technology Review argued, who needs democracy when you have data? The CCP is making an attempt to leverage the huge quantities of information generated by an more and more digitised society to attempt to create extra responsive authorities methods. [Source]

The announcement of China’s cryptocurrency ban rattled the markets. Jonathan Ponciano at Forbes tallied the initial shock

The worth of the world’s cryptocurrencies tanked to a low of about $1.8 trillion by 7:15 a.m. EDT on Friday, falling roughly 9% and shedding $188 billion in market worth inside simply three hours of China’s announcement, in accordance with crypto-data web site CoinMarketCap.

The stark plunge worn out just about the entire beneficial properties since a world inventory selloff on Monday triggered the crypto market’s worst decline in weeks, with prime cryptocurrencies bitcoin, ether and Solana’s sol falling between 6% and 10% apiece Friday morning. [Source]

However, as shares recovered considerably, analysts emerged divided of their interpretations of the longer-term impression. Some considered China’s new ban as an inevitability, and retained their faith in the future of the cryptocurrency market, which enjoys nice reputation within the U.S., Kazakhstan, El Savlador and many different international locations. FTX, the second hottest crypto buying and selling platform, went as far as to move its headquarters from Hong Kong to the Bahamas upon listening to the information. But regardless of China’s ban on cryptocurrencies, their underlying blockchain technology is still feasible and popular in China, leaving loads of alternatives in nascent markets. Vildana Hajric and Katherine Greifeld from Bloomberg reported on the mixed views over how the ban fits into the future of cryptocurrency in China and world:

Chen Arad, chief working officer at crypto danger surveillance agency Solidus Labs: 

“Though China’s transfer is especially dramatic, it displays on comparable issues regulators globally are sharing surrounding crypto market integrity and its position in illicit exercise. Manipulation and fraud isn’t distinctive to crypto however, as a brand new asset class, digital property current new challenges and have extra to show to regulators and the general public.”

[…] Steven McClurg, chief funding officer at crypto fund-manager Valkyrie Investments: 

“China has banned crypto no less than a dozen instances this 12 months. The volatility we’re seeing as we speak could also be a knee-jerk response by some, however most market members have already priced a China ban in from the start of the summer time.”

[…] Alex Tapscott, managing director of the digital asset group at Ninepoint Partners:

“Veteran merchants are conditioned to shrug off dangerous information from China and purchase the dip, however might this time be totally different? There are just a few causes to assume so,” together with China’s tech crackdown, in addition to its pursuit of its digital yuan, amongst different elements. [Source]

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