The price of Bitcoin fell below $30,000 for the first time since January this week. That’s half of what it was worth just three months ago, and it comes amid concerns that China, the world’s largest bitcoin miner, is trying to ban cryptocurrencies altogether.
While we haven’t seen any reports of China banning crypto outright, the government began issuing warnings about cryptocurrency trading and mining in May, telling the country’s financial giants that they would have to stop dealing in cryptocurrencies. Since then, we’ve seen the country’s top three mining districts start taking steps against miners.
The government reportedly met with major banks again this week just to stress that banks cannot engage in cryptocurrency transactions.
Reports suggest there could be a significant drop in the world’s crypto-mining capacity: the University of Cambridge estimated in April of 2020 that China provided 65 percent of Bitcoin’s hash, with three major provinces making up the bulk of that computing power. And these three regions appear to be following the government’s lead by working to limit cryptocurrencies – Xinjiang, which has the highest number of mining operations on average according to the collapse of Cambridge County, has closed a major mining hub, according to several reports.
Inner Mongolia has reportedly begun the process of imposing a complete ban on mining. Last week, Sichuan Province imposed a ban on mining, and electricity companies were reported to cut off electricity for any mining operations they discovered. The Yunnan provincial government has reportedly told its energy companies to stop doing side deals with miners.
Xinjiang’s massive role in global cryptocurrency mining came home in April 2021 when one coal plant in the region was flooded and shut down for the weekend, reducing bitcoin mining capacity worldwide by about 35 percent. How much will cryptocurrency production in China fall if these regions stop going online?
According to Global Times estimates, “more than 90 percent of bitcoin mining capacity, or a third of the global crypto network’s processing power, will be suspended in the short term.”
Both miners and the market responded to the tightening regulations. Last week, CNBC reported that a “major mining exodus” was underway, with some miners in China currently packing and moving to other countries, such as the United States or Kazakhstan. Others sell their mining equipment to foreign buyers, as shown below.
Since the government’s statements in May, graphics card prices in the country have fallen significantly, according to the South China Morning Post, as demand for graphics processing units (GPUs) has fallen. Major cryptocurrencies like Bitcoin and Ethereum have also fallen sharply since China made these moves.
According to the Coinbase tracker, since early May, bitcoin prices have dropped from around $55,000 to around $32,000, and the value of Ethereum has halved. It’s hard to link this directly to China’s actions, especially given other factors like Elon Musk and the NFTs, but publications like The Wall Street Journal discuss this as a factor.
The Chinese government says it is now acting on concerns about the volatile price of the cryptocurrency, and the potential for it to be used for money laundering and illegal transactions, according to Reuters. There is also speculation that the Chinese government may be concerned about the optics: crypto mining’s reputation as an environmental disaster does not align with China’s desire to be seen as a green energy leader, whose leader has pledged that the country will be carbon neutral by 2060. China is also developing its own central digital currency.
The Chinese government has clamped down on Bitcoin for years — it banned banks from dealing with bitcoin in 2013, and banned initial coin offerings in 2017. But cheap electricity from hydro and coal, along with some legal gray areas, allowed mining
Explode the country now.
Some miners seem to have had enough. The head of the Hong Kong mining pool told CNBC that he “didn’t want to face every year, some kind of new ban coming in China.”
Mining in China isn’t the only country making political moves around cryptocurrency — Iran has issued a temporary ban during the summer months, and India will likely make crypto ownership illegal. But El Salvador went in the opposite direction, becoming the first country to introduce Bitcoin as legal tender in the country، As mentioned by Theverge.