BEIJING – Cryptocurrency prices have risen and fallen dramatically in recent weeks as China tightens its grip over cryptocurrency trade and mining.
The huge mines of Sichuan province were shut down by Beijing on Monday, causing world-famous cryptocurrency to plummet by more than 10%.
Crypto analysts are pondering why China is cracking down now and what it signifies for the market as a result of the country’s legislative attack on digital currency.
Beijing wants to be in charge, and the financial system is becoming increasingly important to it.
Beijing is hungry for power, and the financial sector is increasingly on its radar.
Bitcoin, the world’s most popular digital money, and other cryptos are difficult to control since they cannot be tracked by a country’s central bank.
This month, Chinese officials made trading illegal in order to “avoid and manage financial risks.”
China, according to analysts, is concerned about the spread of illegal investments and fundraisers, and it has severe capital outflow regulations.
These safeguards are jeopardised by crypto transactions.
“China does not have an open capital account, and cryptocurrencies sidestep this, which is anathema to the Chinese government,” Jeffrey Halley, Asia Pacific analyst at Oanda, told AFP.
However, the crypto crackdown opens the door for China to establish its own digital currency, which is already in the works and will allow the government to oversee transactions.
While the manufacturing and trade of cryptocurrencies have been prohibited in China since 2019, Beijing’s recent actions have resulted in the shutdown of its huge network of bitcoin miners.
Nearly 80% of the global cryptocurrency trading is powered by China’s energy-intensive bitcoin data centers.
Due to low-cost electricity and technology, Chinese businesses have been able to process the vast majority of cryptocurrency transactions and produce the time-consuming hexadecimal digits required to mint new money.
Some of China’s mining is powered by lignite, a particularly dirty form of coal, and Bloomberg estimates that it won’t be able to fulfill its bitcoin industry’s demands with renewable energy until 2060.
According to Cambridge University’s Bitcoin Electricity Consumption Index, crypto-mining will consume 0.6 percent of the world’s total electricity production in 2021, which is more than Norway’s yearly consumption.
The fact that crypto’s massive power needs have led to a spike in illicit coal extraction, putting Beijing’s aggressive climate objectives in jeopardy, may have prompted Chinese limitations.
As the central government plays whack-a-mole with the dark industry, some provinces have forced mines to close.
Last week, authorities in Sichuan province ordered the shutdown of 26 mines and directed power providers not to give electricity to the power-hungry enterprises.
Bitcoin’s price plummeted to $32,309 after a strike on one of the major mining areas.
In March, China began testing a digital yuan. Its goal is to allow Beijing to undertake international transactions in its own currency, decreasing Beijing’s reliance on the dollar, which remains the world’s leading currency.
“It’s about expanding the worldwide availability of the yuan while keeping total control,” said analyst Halley.
While nations compete to establish their own digital currencies as market leaders, experts believe that state-sanctioned digital money will not diminish crypto’s attractiveness as a safe haven away from government control.
“Bitcoin only competes slightly as a payment method,” stated Leonhard Weese, Co-founder of the Hong Kong Bitcoin Association.
“For the time being, its major attraction is that it is difficult to seize, censor, or debase.”