Chinese Restrictions on The Operation of Cryptocurrencies and Mining
In 2021, China's mining process and Bitcoin's price were not threatened. Everything was quiet until mid-May when Chinese authorities dealt a few blows to the crypto market.
As the CEO of cryptocurrency exchange Kyrrex, based in Malta, I would like to tell about the state of the Chinese mining market and the challenges that mining companies will face in the near future.
China's Vice Premier Liu He's announcement tightened up the cryptocurrency and mining market pushed Bitcoin into another slump on May 21, 2021. It began to bring many companies back to the reality in which Bitcoin will not be worth $200K by the end of next year.
In just two hours, the first digital currency plummeted to $36K. Moreover, Chinese companies that provide data center, cloud, and telecommunications services can lose their licenses if authorities find out about their involvement in cryptocurrency mining.
On May 19, Chinese authorities imposed a total ban on financial institutions to provide services in the cryptocurrency market. So they lost the right to issue products based on cryptocurrencies, conduct transactions, and provide services for their management.
Four years ago, the Chinese authorities already made a similar attempt to regulate the cryptocurrency market. At that time, it was forbidden for exchanges to operate in the country. Nevertheless, there are good reasons for Bitcoin's decline, and they include physical mining.
These changes could be related to the Chinese Central Bank's lobbying for its electronic currency, in which the electronic yuan remains part of the banking system. To receive it, a citizen needs to have an account at one of the specified banks.
Nevertheless, the events of June greatly overrode the shock therapy of May. Here are some of them, which on my mind were the most important:
At the beginning of June, Weibo users experienced administrative restrictions on access to several major cryptocurrency accounts with the note: "It violates laws and regulations.” In addition, the accounts of opinion leaders and bloggers related to cryptocurrencies were also restricted. Thus, gradually, mining and circulation of cryptocurrencies and even news on the topic are banned.
The Chinese government has banned the mining of digital assets in Sichuan, Yunnan, Qinghai, and Xinjiang provinces. It led to a huge drop in the price of not only Bitcoin to $30K-$32K and many other cryptocurrencies.
The People's Bank of China held a conversation with the five largest banks in the country and with the service Alipay on the prohibition of any financial transactions with cryptocurrencies.
Many companies operating in the Chinese market are rushing to sell their mining assemblies, offering a 30% discount. Others are preparing to move to other countries, such as the U.S., Canada, Latin America.
At the beginning of June, Weibo users experienced administrative restrictions on access to several major cryptocurrency accounts with the note: "It violates laws and regulations.” In addition, the accounts of opinion leaders and bloggers related to cryptocurrencies were also restricted. Thus, gradually, mining and circulation of cryptocurrencies and even news on the topic are banned.
The Chinese government has banned the mining of digital assets in Sichuan, Yunnan, Qinghai, and Xinjiang provinces. It led to a huge drop in the price of not only Bitcoin to $30K-$32K and many other cryptocurrencies.
The People's Bank of China held a conversation with the five largest banks in the country and with the service Alipay on the prohibition of any financial transactions with cryptocurrencies.
Many companies operating in the Chinese market are rushing to sell their mining assemblies, offering a 30% discount. Others are preparing to move to other countries, such as the U.S., Canada, Latin America.
I’m sure that such shock therapy was bound to pass. For too long, China has taken the lead in mining, leaving North America, Russia, Kazakhstan, and other countries far behind. It seems that China has decided to limit its influence on the global economy. The companies that survive China's shock therapy will never go back.
How Do Restrictions Affect The Mining Business?
The University of Cambridge, in its report on the state of mining in the world and China, noted that Chinese mining operators account for 65.08% of the global volume of a mined cryptocurrency. However, the world does not stand still, and many important events have occurred over the past two months.
Here are some of the most significant ones:
The market responded to the May events with two falls with a significant correction, during which the Whales bought 77,000 bitcoins worth more than $3 billion.
Bitmain has decided to suspend taking orders for new builds. However, old pre-orders will be delivered unchanged. The reason was the over-saturated secondary equipment market amid the ban on mining in China.
At the same time, 15 banks in India are forming a blockchain consortium, Indian Banks' Blockchain Infrastructure Co. (IBBIC). The U-turn by Indian authorities and the Central Bank could become a landmark event in the Asian mining and cryptocurrency financial services market. The banks' belief in blockchain technology will only fuel interest in crypto-assets.
El Salvador has decided to make Bitcoin legal tender. The country needs to show the world the potential and possibilities of the first cryptocurrency as a payment method. The government expects that opening the country to Bitcoin will allow people to invest more in the country's economy.
Another boom in the crypto-mining market began in Argentina because of the affordable price of electricity, with a target for the current Bitcoin price around $30-$32K.
Opinions of the crypto community are divided. For instance, some investors are still filled with optimism that buying Bitcoin at any price is a good idea. Others are waiting for Bitcoin's price to start falling toward a new limit of $20,000.
(Disclaimer: The author of this story is the CEO at Kyrrex Exchange)