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How China Rivals Elon Musk in Rattling Crypto Markets

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Cryptocurrency markets aren’t moving much like Elon Musk’s tweets, with the possible exception of the idea of ​​another crackdown on China, the world’s second-largest economy.

From a trade ban on domestic exchanges to restricting energy-consuming digital currency miners, Chinese regulators have tried to reduce the risks associated with the boom in Bitcoin and its peers for years. However, a recent round of official warnings has again made traders nervous, although some appear to reiterate previous positions.

While the statements may be difficult to decipher, they seem to indicate that China is watching cryptocurrencies closely and could take further steps to control them as President Xi Jinping seeks to reduce financial risk in the economy and meet the ambitious climate goals. change. .

What did China do?

In 2017, China asked exchanges to stop trading cryptocurrencies and banned initial coin offerings or ICOs, which are the equivalent of initial public offerings of new virtual currencies. The government also prohibits financial institutions and payment service providers from engaging in crypto transactions, even tangentially, such as opening a bank account for those who perform them. He also decided to discourage Bitcoin mining, the energy-intensive computing process involved in creating digital currency and verifying transactions, which has long been focused in China.

Why this new attention?

On May 21, the Chinese State Council, the country’s cabinet, called for a further crackdown on Bitcoin’s mining and trading activities at a meeting focused on promoting financial stability, according to a government statement.

It was the first time that senior Chinese officials highlighted nationwide cryptocurrency mining since its removal from the proposed list of dirty industries to be phased out in 2019. Previously, there had been regional crackdowns in cheap energy places like Inner Mongolia, but the app has always been a big question mark.

However, from April, the government of the coal-rich region banned mining, set up an alert system, and said it would increase penalties for violators. Meanwhile, a large number of semi-official financial industry associations have issued an advisory reminding company not to get involved in cryptocurrencies.

Why is China raging?

There has been no explicit explanation, but cleaning up financial market risk has been a government mantra for years, as recently witnessed by the crackdown on fintech giants, including Jack Ma’s Ant Group Co. and Central bank labor to develop a digital yuan.

Digital currencies also offer a way to withdraw money from China, which could increase the outflows that officials have decided to aggressively stop.

As for mining, local governments have become wary of the industry’s enormous energy consumption, more annually than the entire country of the Netherlands, in a moment when the Xi government commits itself to achieving carbon neutrity. by 2060.

More immediately; the trigger in the State It was said that the council meeting was due in part to the concern that crypto mining has fueled an increase in illicit coal mining; following an increase in fatal accidents this year. Some crypto-miners generate their own electricity off the grid.

Wait, aren’t cryptocurrencies huge in China?

China dominates the world in cryptocurrency mining in several ways: Companies like Bitmain; MicroBT, and Canaan Inc., which is listed in the United States, are the largest makers of cryptocurrency mining machines; Others, like F2Pool and Poolin; run online services where users combine their computing power; share their rewards for a better chance of unearthing new coins.

China is also home to the majority of the world’s miners, originating from warehouses and data centers that use cheap coal or hydroelectric power in areas like Xinjiang, Inner Mongolia, Sichuan, and Yunnan.

As of April 2020, China provided 65% of the global computing power for Bitcoin mining; compared to 7% for second place in the United States; according to an estimate from the University of Cambridge.

When it comes to trading, Bitcoin and its peers can still be traded; but only directly between two parties in OTC markets run by companies like Binance and Huobi; a slower process.

What was the impact?

It is difficult to judge. China’s latest offensive is mostly physical mining facilities, where no particular player has an advantage. There are potentially tens of thousands of operations scattered across the country, making regulatory scrutiny difficult.

Yet these measures have reshaped the industry and driven up costs. The computing power of the Bitcoin network suffered a dip in the days following the State Council meeting; suggesting at least a temporary halt in mining operations.

Some Chinese miners have started moving operations; selling Bitcoins or their machines, tweeted Mustafa Yilham; vice president of the Chinese crypto wallet and Bixin miner.

But the exodus of Chinese crypto players has continued since 2017. Bitmain has established mining operations in the United States and Canada; a host of local providers of wallets and exchange services have opened stores in locations. like Hong Kong and Singapore.

The latest warning shots from regulators could accelerate this process. On May 26, Beijing-based BitDeer; a mining startup founded by influential crypto entrepreneur Jihan Wu; said it had blocked all internet addresses in China to ensure the company did not address more to Chinese citizens.

Huobi has stopped recruiting new Chinese users to trade riskier crypto-related products on its platform; the company has also suspended machine sales and hosting activities in the country. Smaller crypto futures like XMEX have announced full closings.

What about cryptocurrency prices?

China’s initial crackdown resulted in heavy losses in the price of Bitcoin in early 2018; but the largest cryptocurrency has seen many ups and downs since then. It has gradually recovered and hit an all-time high of $ 64,870 in April.

The latest news from China hit Bitcoin believers who were still furious after Musk; the CEO of electric vehicle maker Tesla Inc; made a drastic change and criticized the token for its power consumption. Bitcoin fell 10% immediately after the State Council meeting.

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