In recent months, the Chinese government have issued a warning about trading and using cryptocurrencies as forms of payment. A month later, the Chinese government issued a statement which prohibits state-owned banks and other crypto enterprises to trade, mine and use cryptocurrencies.
The ban on mining bitcoin, comes amidst growing environmental concerns over the “power-hungry process of computational puzzle-solving that creates new units of the virtual currency”. It is estimated that bitcoin mining consumes a hefty, 133.68 terawatt hours of electricity per year, with most of the mining fueled by dirty fossil fuels such as coal. This runs in accordance with China’s pledge to become carbon neutral by 2060.
The growing financial risk with trading and using cryptocurrencies has prompted government intervention as the volatility of the market and the possibility of illicit transactions could get out of control. The sheer volatility of the cryptocurrency market makes it a high-risk asset where sudden changes or influences outside market forces can fuel currency bubbles or significant losses. “Chinese Vice Premier Liu He and the State Council said in a statement that tighter regulation is needed to protect the financial system”
Scrutiny by Chinese regulators has resulted in the mass exodus of Chinese bitcoin miners, as reported by CNBC as they have begun to relocate their machinery overseas to places such as the US or Kazakhstan. China currently holds the world’s largest proportion of bitcoin mining at around 65.08 per cent since April 2020. However, when restrictions on bitcoin mining were implemented, most bitcoin mines shut down as of the 20th of June. According to the Communist Party-backed newspaper Global Times, as much as 90 per cent of mining capacity is to be ceased.
Over the course of the year, the value of Bitcoin has displayed an increasing trend from January to April with significant troughs and peaks within a small timespan. By February, the price of Bitcoin skyrocketed after CEO of Tesla Motors, Elon Musk announced that acceptance of cryptocurrencies as payments. This was coupled with the so called ‘hype’ around the meme currency Doge Coin gained traction in the market following a series by Elon Musk. Three months later, devaluing of major cryptocurrencies occurred, after a statement by Tesla announced the temporary suspension of transactions using cryptocurrencies. This downward trend could only have been exacerbated by the nationwide ban on blockchain activity as staggering losses of up to $20,000 followed from a surge in the value of bitcoins.
The decline in hashing activity by Chinese miners on the 18th of June, was the result of a “screen, clean up and terminate” notice by The Sichuan Provincial Development and Reform Commission and the Sichuan Energy Bureau. The legislators ordered 26 cryptocurrency mining firms to shut down and gave permission to local electrical companies to terminate the supply of electricity to any mining activity it detected.
Written By: Nathan Ng