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China Crypto Crackdown and How it Impacts Bitcoin Mining
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Does China allow cryptocurrency? Is it legal to buy Bitcoin in China? Why is China cracking down on cryptocurrency exchanges and Bitcoin mining?
There is no denying that China has been one of the hotspots for Bitcoin mining. The Sichuan province has been a powerhouse for Bitcoin mining operations for years.
According to the University of Cambridge research, China was responsible for 65% of global Bitcoin mining in 2020 alone, indicating the complex link between China and Bitcoin. But despite everything, China’s relationship with cryptocurrencies has nothing short of a rollercoaster ride.
The Legal Status of Cryptocurrency in China
China has prohibited financial institutions from providing services to cryptocurrency companies, rendering cryptocurrency transactions dysfunctional. Since then, a number of cryptocurrency exchanges and trading platforms have continued to remain shut down in the country, with many Bitcoin mining operations in China now coming to a standstill.
But the recent crackdown on financial services facilitating crypto payments is nothing new; the country is simply reiterating the ban it imposed in 2017 during the ICO boom.
Timeline of China’s 2021 Anti-Crypto Crackdown
Regulatory actions restricting Bitcoin mining operations have increased twofold in the past weeks. Let’s take a look at the detailed timeline of events contributing to the fact that the future of cryptocurrencies in China is full of uncertainties:
21 May: Chinese financial regulatory body the Financial Stability and Development Committee (FSDC) announced that they would crackdown on Bitcoin mining and trading.
25 May: Inner Mongolia, an autonomous region of northern China, issued proposed guidelines on banning cryptocurrency mining.
27 May: Sichuan province, which accounts for a large amount of hydro-powered Bitcoin mining, announced a public meeting to assess the impact of a ban on Bitcoin mining.
5 June: Weibo started suspending accounts owned by Chinese crypto influencers.
9 June: Baidu and Weibo started censoring keywords related to a few cryptocurrency exchanges. China also ordered Xinjiang and Qinghai provinces to shut down mining operations.
11 June: Yunnan, a major hydroelectric generating province, announced its plans to inspect Bitcoin mining farms by the end of the month.
19 June: Sichuan issued orders directing state-owned energy suppliers to cut power to 26 local mining farms.
21 June: The People’s Bank of China ordered banks to block crypto transactions.
Bitcoin Mining in China
Chinese provinces like Sichuan, Xinjiang, Yunnan, and Inner Mongolia have primarily contributed to mining operations, courtesy of renewable and non-renewable sources.
Through several restrictions, the Chinese government has managed to stop the functioning of these mining facilities. As a result, mining new Bitcoin in China seems virtually impossible.
Is Bitcoin banned in China?
So, does that mean Bitcoin is banned in China?
Mining regulations have brought FUD (fear, uncertainty, doubt) to the global crypto markets, causing the price of Bitcoin to fall dramatically. While mining and trading crypto is prohibited, Chinese citizens can still hold Bitcoin and other cryptocurrencies.
In fact, the recent crackdown on financial institutions dealing with crypto transactions more or less reiterate past regulations.
Is China Against Crypto?
Crypto’s volatile price and ‘unintended consequences’ could be some of the primary reasons Chinese authorities may prohibit crypto in the country. Another speculation is that China may be concerned about crypto mining not aligning with its desire to be seen as a leader in green energy. Chinese leaders have already pledged that the country will be carbon-neutral by 2060.
Has China Abandoned Blockchain?
China has been working on a central bank digital currency (CBDC) for quite some time now. The Digital Yuan, a version of the traditional Chinese currency (RMB) deployed on a permissioned blockchain, is currently in the works.
The former head of Digital Yuan also said central bank digital currencies (CBDCs) could one day operate on Ethereum. Therefore, it seems unlikely that China will completely abandon blockchain.
While the recent restrictions in China make it more difficult for individuals to buy cryptocurrencies, some positives cannot be overlooked. China banning crypto seems like a blessing in disguise where miners being forced to relocate to other countries could address concerns of China being a dominating force as far as mining is concerned.
It’s estimated that China alone accounts for 65% of global Bitcoin mining. These ongoing restrictions could also be a step towards a greener crypto mining industry, reducing Bitcoin’s carbon footprint to a significant extent and making Bitcoin mining more accessible and profitable.
Many experts remain optimistic as to how Chinese regulations will strengthen bitcoin’s long term-term health.