- China’s central bank has vowed to maintain intense regulatory pressure on cryptocurrency trading and speculation.
- Starting May 2021, the country has actively cracked down on cryptocurrency trading and mining, dealing a massive blow to crypto exchanges, mining firms, and investors.
- By going after miners, the communist state is setting a precedent that it won’t tolerate any cryptocurrency-related activities and that the future shall lie in CBDC.
- The government says that investor protection, carbon neutrality, and financial stability are the three critical factors for the new regulations.
The People’s Bank of China (PBoC) said in a meeting on Saturday that the central bank would “maintain high pressure on virtual currency trading hype.” In a meeting, the PBOC asked the banks and other payment institutions such as AliPay not to be involved in cryptocurrency operations. In simpler words, anyone engaging in cryptocurrency operations would see their accounts disabled by the banks and other payment institutions.
China has opposed cryptocurrencies for years, but its displeasure was limited to on-paper restrictions. Starting May 2021, the country has actively cracked down on cryptocurrency trading and mining, dealing a massive blow to crypto exchanges, mining firms, and investors. Banks were told to not provide products or services such as trading, clearing and settlement for cryptocurrency transactions.
Coming from the State Council’s Financial Stability Committee, China’s highest level financial regulator led by vice-premier Liu He, the new cryptocurrency crackdown is a significant upgrade of existing regulations.
According to a Reuters report, Agriculture Bank of China (AgBank), China’s third-largest lender by assets, said it would follow the guidelines from the PBoC and clamp down on crypto trading and mining activities. The bank suggested that any client found to be involved in crypto mining or trading operations would have their accounts shut down immediately.
Furthermore, it is the first time the State Council has explicitly targeted cryptocurrency mining activities, which indicates a determination to crack down on cryptocurrency trading from its origin.
China’s cryptocurrency crackdown has severely affected miners and it’s going to get worse for investors
Until May, China contributed 65% of Bitcoin’s total hash rate, which means it was the de facto hub for mining globally thanks to affordable electricity and seamless computer hardware supply chains. By going after miners, the communist state is setting a precedent that it won’t tolerate any cryptocurrency-related activities and that the future shall lie in a centrally-backed digital currency.
According to a July 2021 progress report by the central bank, its e-yuan (digital yuan) has been used via 70 million transactions, reaching a total value of $5 billion by the end of June. China vehemently believes the future lies in a controlled currency and that turning the fiat yuan into a digital commodity is the best way forward.
The overall network hash rate for Bitcoin decreased by 40% initially as Chinese miners went dark. Mining companies are actively migrating out of the country in search of greener pastures that can provide affordable energy and freedom to mine.
Why is China cracking down on cryptocurrencies?
The government says that investor protection, carbon neutrality, and financial stability are the three critical factors for the new regulations. China has long been cautious about creating bubbles that could potentially burst and lead to instability, a financial crisis. China has historically cracked down on more straightforward commodities like garlic, tea, and even peer-to-peer loans.
The PBoC convened representatives of multiple establishments, including state-owned commercial banks and private entities such as Alipay, and told them to “strictly implement” recent notices and guidelines from authorities on curbing risks tied to cryptocurrency transactions. The government began by banning crypto exchanges from operating in the country and initial coin offerings (ICOs). This forced exchanges like Binance, OKEx, and Huobi to relocate to crypto-friendly countries.