China Announces Huge Crackdown on Cryptocurrency Mining
"The wording of the statement did not leave much leeway for cryptocurrency mining."
According to a new announcement by the Chinese government, the country is looking to crack down on cryptocurrency mining.
The Thursday statement, penned by the State Council’s Financial Stability and Development Committee, comes just three days after regulators banned financial institutions from doing any business related to cryptocurrencies.
The Chinese government will “crack down on bitcoin mining and trading behavior, and resolutely prevent the transfer of individual risks to the society,” according to the statement, as translated by the South China Morning Post.
That’s a huge deal for the cryptocurrency world, because China accounts for 65 percent of Bitcoin mining globally, according to Coindesk. A massive industry has grown around the practice, with warehouses full of computers relying on fossil fuels to generate enough power to turn a profit in the competitive mining industry.
“The wording of the statement did not leave much leeway for cryptocurrency mining,” Li Yi, chief research fellow at the Shanghai Academy of Social Sciences, told SCMP. “When all mining activities are banned in China, it will be a turning point for the fate of bitcoin, as a large chunk of its processing power is taken out of the picture.”
The statement, however, doesn’t explicitly mention an outright ban of the practice. Nonetheless, the wording certainly doesn’t leave much hope for the countless businesses that have cropped up and profited greatly from recent surges in its value.
That surge in early 2021 was followed by a significant slump, compounded by billionaire and Tesla CEO Elon Musk. Tesla had first allowed payments to be made in Bitcoin back in March, but Musk reversed that policy only a few months later, citing environmental concerns.
Now, it looks like China is also alarmed by cryptocurrency mining’s considerable carbon footprint. The country wants to cut emissions by at least 65 percent by 2030.
Meanwhile, Musk is trying to tackle the issue in the US as well.
“Spoke with North American Bitcoin miners,” the CEO wrote in a Monday tweet. “They committed to publish current and planned renewable usage and to ask miners [worldwide] to do so.”
“Potentially promising,” he added.
The environment isn’t the only concern for both China’s and the US government. Both countries have also cited concerns over illicit uses of cryptocurrencies.
Just last week, the US Treasury Department announced that businesses must report any cryptocurrency transaction greater than $10,000 to the IRS, Ars Technica reported.
It appears that China also cracking down on illegal crypto-related activity.
“It is necessary to maintain the smooth operation of the stock, bond, and foreign exchange markets, severely crack down on illegal securities acts, and severely punish illegal and criminal financial activities,” reads the Chinese government’s statement.
The country is also working on its own centralized digital currency, albeit relying on fundamentally different technologies than cryptocurrencies.
With a switch to a central bank digital currency (CBDC), the Chinese government will have an unprecedented level of scrutiny over most transactions occurring within its borders, critics say. Transactions made via cryptocurrencies, in contrast, are largely anonymous.
Some argue China’s crackdown on cryptocurrencies could be seen as a way to clear the way for its own digital currency.
“It’s no surprise to me, as Chinese capital controls can be challenged by cryptocurrency purchases in the country and transfers out of the country,” CEO for APAC at Saxo Markets told Bloomberg last week.
“So avoiding use of them in the country is essential to maintaining capital controls,” he added. “The only tolerable digital currency to a government with strong capital controls is their own [Central Bank Digital Currency].”
Cracking down on all cryptocurrency mining will be a major task for local law enforcement and a complete ban could take years to enforce.
The move will also likely have a great effect on the value of popular cryptocurrencies like Bitcoin. Without China in the picture, the future of traditional cryptocurrencies that rely on industrial-scale mining practices is starting to look a lot more uncertain.
READ MORE: China to crack down on mining of cryptocurrencies, delivering a one-two punch to digital tokens after triggering global sell-off [South China Morning Post]
More on the crackdown: China Bans Banks From Using Cryptocurrency, Causing Worldwide Crash