What is the aftermath of the crypto ban in China?
The news of China's crypto ban has sent shockwaves through the cryptocurrency community around the world as China is a dominant player in cryptocurrency mining, accounting for over 70% of the global crypto supply.
This latest move by the People's Party of China has affected the bitcoin users globally, who are concerned of the outcome that might follow.
After years of cryptocurrencies mining without any constraint, the country considers mining a threat to its plans to reduce CO2 emissions by at least 65% by 2030. Hence, it decided to crack down on mining operations that consume an enormous amount of energy.
Crypto restrictions in China:
China’s crypto warning to banks and miners is not new. In 2013, China barred banking institutions from offering services related to bitcoin.
As early as 2017, China’s Central Bank officially barred banks from providing any services related to cryptocurrencies. But, some major cryptocurrency trading platforms found loops holes and were able to transact through personal bank accounts due to certain banks’ lax compliance requirements.
Both these earlier bans were issued by the People’s Bank of China(PBC) and other government agencies- China Securities Regulatory Commission and the Ministry of Industry and Information Technology.
In China’s latest attempt to put a stop to virtual currency use, the Central Bank has urged banks and payment firms to crack down harder by thoroughly checking client accounts. If client's involvement is found in cryptocurrency transactions, their payment channels for any digital currency trading will be suspended.
Why it's banned?
These latest developments come after China's State Council vowed to crack down on bitcoin trading and mining, intending to reduce any financial risks that are due to bitcoin trading.
Chinese regulators have expressed their concern over cryptocurrencies being highly volatile, disrupts economic order, and facilitates the illegal transfer of assets and money laundering. China also has environmental concerns over Bitcoin’s power consumption, which increases the CO2 levels in the atmosphere as most electricity still comes from fossil fuels.
Some analysts claim that the clampdown is because China is testing its digital currency and is also worried about potential competition for the digital yuan.
The aftermath of the Crypto ban:
PBC's statement on bitcoin sent the popular Cryptocurrencies tumbling to a two-week low, plunging below $30,000, and ether to a more than five-week low. Even though on Tuesday, prices of major cryptocurrencies stabilized, this ban will have a major effect on the crypto market.
As global investors are worried about disruptions in the crypto space, the latest ban by the Chinese regulators makes it far more difficult for crypto miners and investors in China as most financial institutions have been directed to stop offering crypto services and hold complete restrictions on crypto users.
China's bitcoin mining contributes to over half of global bitcoin production, now with the ban coming into force, some bitcoin miners are looking forward to moving overseas, others are selling their expensive mining equipment. Even top cryptocurrency exchanges like Huobihad and services like BTC.TOP and HashCow had to suspend their operations.
"Many miners are quitting the crypto business to comply with government policies," said Mike Huang, operator of a crypto mining farm in the southwest province of Sichuan. "Mining machines are selling like scrap metal," he adds.
Sichuan province, the top mining hotspot issues a ban on all cryptocurrency mining, and miners are either selling or dumping all their mining equipments.
After the ban, and shutting down of activities in many provinces, the dependency on fossil fuels in regions like Iran, Kazakhstan, and the US will eventually grow.
Bitcoin’s hash rate fell from 180.66m (TH/s) to 127m, as 90% of Chinese miners have shut their bitcoin mining operations after the supply of electricity has been stopped amid a nationwide crackdown.
What is a hash rate?
It is a measure of the processing power per second used when cryptocurrency is mined. To increase the hash rate more resources are needed to process transactions on the blockchain.
Chinese Communist Party (CCP) firmly believes that cryptocurrency can pose a serious risk to the country's financial stability. This move will only accelerate crypto miners and several large-scale mining firms to move out, look for countries like the US or Canada with relaxed laws on cryptocurrency.
CBW - External Analyst