This week we have witnessed the price of Bitcoin drop below $30,000 for the first time since January. The dramatic crash from recent all-time highs of around $65,000 just a few months ago comes amid near daily headlines warning the worlds number one Bitcoin mining country, China, is aiming for an outright ban on cryptocurrencies.
Is it? And if so, what effect will this have on Bitcoin and the cryptocurrency market long term?
Old crypto hands may shrug off this latest round of China FUD (Fear Uncertainty and Doubt) as insignificant, after all we’ve seen all this before, haven’t we? As far back as 2013 the country’s government started making moves against Bitcoin when it banned banks from handling the flagship cryptocurrency, and again in 2017 when it banned ICO’s as well as prohibiting crypto exchanges.
This time around however, it seems that China is more serious, and this round of anti-crypto crack downs could have more significant and longer lasting effects.
Back in May the Chinese government drove home its position against cryptocurrencies with a ban on crypto-related financial and payment services, just a few days later the State council launched an attack on Bitcoin mining and trading. Since then, China’s top three mining regions, Xinjiang, Sichuan and inner Mongolia have started making moves against miners with everything from outright bans to cutting off power supplies. It has also been reported that the government again met with major banks this week, apparently to ‘remind’ the banks that they can’t be involved with cryptocurrency transactions.
While China has not banned the ownership of cryptocurrency, it seems that even talking about it is now less acceptable to Chinese authorities with numerous reports of crypto focused accounts being banned from social media platforms such as Weibo.
The official reasoning behind the country’s stance against anti-authoritarian technologies, it has been reported, is that the Chinese government has concerns around crypto’s volatile price, and its potential use for money laundering and illegal activities. Some have speculated that environmental concerns and crypto mining’s reputation, whether warranted or not, doesn’t fit in with China’s aims to become a world leader in green energy, while others have reflected upon the development of the country’s own centralized digital currency.
So, how could all of this be good for Bitcoin?
In April of last year, the University of Cambridge estimated that China accounted for 65% of Bitcoins hash rate, the bulk of which coming from the three main provinces. One Chinese blockchain company calculated that More than 90% of Bitcoin mining capacity, or one-third of the world’s crypto processing power, will be suspended if these regions were all to go offline. So how could its harsh clampdown on crypto any good for Bitcoin?
We have already seen the beginnings of what some are calling the “great mining migration” with Chinese miners moving their operations overseas to more crypto “friendly” locations such as the US and Kazakhstan, while El Salvador recently set its case as a carbon free environment for Bitcoin mining.
Having more decentralized mining operations which are not concentrated in China would help shut down any rhetoric that China is controlling the world with Bitcoin.
With such a large portion of the mining industry based in China, authorities there have been able to influence the market greatly, as has been witnessed over the last few months.
With mining operations moving overseas, China will have far less control over Bitcoin and cryptocurrency markets and prices.
The carbon footprint of mining Bitcoin has also dominated the headlines in recent months, again effecting the markets and helping to cause a decline in prices.
With the new Bitcoin mining council promoting the use of clean, renewable energy in the US and El Salvador making provisions for zero emission volcano fuelled mining compared to cheap coal fuelled operations in China, this reputation could be easily reversed.
In the long run, as China’s control diminishes due to its own government’s actions, Bitcoin and cryptocurrencies can move towards a more decentralized future promoting the use of clean and renewable energy.
This article was written by Lee Mockler for The London Crypto Exchange.