China has adopted a strong line against cryptocurrencies and cryptocurrency mining. The announcement of the country’s assault on Bitcoin has triggered a dramatic drop in the flagship cryptocurrency, as well as the whole cryptocurrency market. Bitcoin has fallen from an all-time high of almost $65,000 to a level where it is currently languishing, just below $33,000, in less than a month. Investors are beginning to ask why China has such a strong grip on Bitcoin’s price.
China has become a hotspot for cryptocurrency miners. Because supply is a major factor in deciding a currency’s price, China regulates the supply of popular cryptocurrencies through mining operations. China is home to almost two-thirds of all bitcoin mining operations. Bitmain is a Chinese business that controls 39% of all mining activities and operates the world’s two largest mining pools. Some call it “the most influential firm in the bitcoin ecosystem” because it invented the ASIC chip, which is used in most bitcoin mining rigs.
Despite widespread criticism of Bitcoin’s energy use, Chinese miners profited handsomely thanks to high prices. This is no longer the case, as the Chinese government has declared war on Bitcoin and other cryptocurrencies.
Where did all the rumor-mongering begin?
Fear, Uncertainty, and Doubt (FUD) has been traced back to as early as 2017. However, China’s current war on cryptocurrency only began about a month ago, when Chinese financial industry bodies, including the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China, declared that financial and payment institutions must not conduct cryptocurrency-related businesses. On the 19th of May, 2021, Bitcoin plummeted from an all-time high to a low of $30,000.
The country’s war on bitcoin mining did not end there – China’s State Council, or cabinet, initiated an attack to crack down on Bitcoin mining and trade just days after the country’s ban on crypto-related financial and payment services. Bitcoin’s computing power, often known as hashrate, has dropped 50% since its high last month due to recent attacks on Bitcoin miners in China.
On Weibo, the country went after cryptocurrency influencers. The social media site sent a warning to bitcoin influencers, accusing them of breaking Weibo guidelines as well as “related laws and regulations.” That is correct! It is now prohibited in China to even discuss cryptocurrency.
Miners in Ya’an, one of China’s largest crypto mining centres, received an inspection notice on Thursday, May 20, 2021, requiring them to halt down. Alibaba Cloud, China’s largest cloud service provider, made calls to cryptocurrency and mining companies registered in China on prospective domain name cancellations owing to regulatory requirements on Friday, May 21, 2021, according to Wu Blockchain.
The Agriculture Bank of China, the world’s third-largest bank by assets, will begin implementing Beijing’s strict anti-cryptocurrency policies on May 24, 2021, and will thoroughly examine its clients to guarantee they are not involved in any unlawful crypto transactions, trading, or mining. “Institutions must investigate and identify virtual currency exchanges and over-the-counter dealers’ capital accounts in a comprehensive manner, and cut off transaction funds payment links in a timely manner; they must analyze the capital transaction characteristics of virtual currency trading hype activities […] and ensure that relevant monitoring and handling measures are in place,” the bank stated.
Why is this Beneficial to Bitcoin?
So, if China is responsible for two-thirds of Bitcoin mining, how is its crypto crackdown beneficial to Bitcoin? Here are some of the reasons:
Hashrate that is not centralized
Miners will relocate their activities to other nations around the world now that mining is prohibited in China. Countries like the United States and El Salvador are attractive places for Bitcoin miners to set up shop because mining activities are encouraged by regulation.
Now that mining will be more decentralized and less concentrated in a single country, the idea that Bitcoin is China’s strategy of controlling the world is discredited. Images have surfaced online of a Chinese logistics firm, Guangzhou, airlifting 3,000kg of mining equipment to the United States.
Actions by Chinese authorities against Bitcoin will no longer be a threat.
As previously stated, Chinese authorities have a significant effect over Bitcoin’s price and have had a significant impact on the market. As mining moves out of China, Chinese policies will have less of an impact on the asset, and the price will eventually stabilize.
Mining will shift to places where renewable energy is prioritized.
The price of Bitcoin has fallen as a result of the headline about Bitcoin mining being bad for the environment. Countries such as the United States and El Salvador have made tremendous progress in ensuring that mining takes place within their borders using clean, renewable energy.
After Elon Musk, the CEO of Tesla, expressed worries about the environmental impact of Bitcoin mining, Michael Saylor, CEO of MicroStrategy, founded the Bitcoin Mining Council in America to advocate the use of clean and renewable energy in mining. Volcano-based mining, which is 100 percent clean energy with zero emissions, is being considered in El Salvador.
To summarize, China’s role as a prominent actor in the bitcoin ecosystem is dwindling. The country had a number of levers at its disposal to influence cryptocurrency pricing. As a result of the Chinese government’s activities, these levers are being taken away. Bitcoin and other cryptocurrencies are now aiming for a more decentralized future that promotes the use of clean and renewable energy in mining, making the area more environmentally friendly.
Bitcoin will continue to move downward in the immediate term, at least until the hashrate stabilizes. In the long run, as the impact of news from China on the cryptocurrency market diminishes, the ecosystem will be poised to reach new all-time highs.
