Recently China has issued restrictions on financial institutions and payment companies from providing services related to digital currencies including mining and trading and warned investors against the risks of speculative cryptocurrency trading. In this article, Tokenize Xchange would go deep into the impact of China’s crackdown on Bitcoin on the crypto mining industry, cryptocurrency exchange, and the global market in general.
It was the latest attempt of the government to calm down the crypto outbreak in China. Under the crackdown, all financial services involving digital currencies will not be allowed to be provided to clients.
Impacts of bitcoin crackdown
China’s crackdown on Bitcoin immediately brought in a Bitcoin plummet. Bitcoin price dropped dramatically by 27% to below $32,000 from $44,000 a week earlier.
Before we break down the impacts of this repression, let’s come to the aftermath of this crackdown on the Bitcoin miners in particular and the cryptocurrency market in general.
Bitcoin mining activities
According to the State Council, one of the reasons for China’s crackdown on Bitcoin mining was environmental concerns. Chen Jiahe, chief investment officer of Beijing-based family office Novem Arcae Technologies said: “Crypto mining consumes a lot of energy, which runs counter to China’s carbon neutrality goals,”
>>>Read more: The truth behind Bitcoin energy consumption<<<
According to Cambridge Centre for Alternative Finance, China contributes 70% to the total Bitcoin hashrate. Chinese miners have been clambering to look for new hosting sites overseas to avoid legal issues from the band.
Ethan Vera, chief operating officer at mining firm Luxor said: “I have been having conversations all weekend, starting since last Friday, with Chinese miners looking to co-locate in the U.S.,” He added: “All the Chinese miners that I know are reaching out, they are getting pricing and quotes.”
Though Chinese government hasn’t implemented any hard force for the crackdown, some mining companies have already taken the first steps. Major cryptocurrency mining companies such as HashCow and BTC.TOP both suspended operations in China following the authority’s warning.
On May 24th, 2021, Huobi announced that they would stop the provision and trading services for new users in mainland China. BTC.TOP also announced the suspension of business operations in the mainland due to legal concerns while HashCow confirmed that they would stop buying new Bitcoin mining rigs.
According to Vera, Chinese miners cannot move their mining operation abroad and start mining at once since it would take about 60 to 90 days to establish a mining farm, noted that the base rate for hosting sites would be high. So their immigration to overseas hosting sites might take a lot of time and be expensive.
Exchanges scaled back
Financial stability is one of the top priorities of Chinese authorities, hence, a volatile market like cryptocurrency is considered a threat to the national economy. According to Fan Long, co-founder of Conflux, a government-backed public blockchain network in China, the government could take further actions to prevent Chinese investors from exchanging yuan into cryptocurrencies in the OTC market.
Since China has raised its cryptocurrency trading and mining operations inspector, a sort of grey market was created. In response to China’s crackdown on Bitcoin trading, Houbi scaled back due to the State Council’s notice.
“The move indicates that the Chinese authorities are trying to prevent more capital from flowing into a more volatile market with high systemic risks,” said Jason Wu, CEO of DeFiner. “If you look at what exact services have been suspended on Huobi, they are among the riskiest trading activities.” According to a Bloomberg report, Huobi has suspended its future contract trading, exchange-traded services, and derivative trading futures.
Also, the official accounts of cryptocurrency exchange Binance and blockchain platform Tron were suspended by Weibo. OKEx – another major digital currency exchange for Chinese investors, had reflected suspending transactions between its token OKB and RMB (China Yuan), leading to its price’s dropping by 70%.
Conclusion
Bitcoin price dropped more than 8.5% as the news of the statement was announced and 40% from its peak. Ethereum and Dogecoin were coming along with Bitcoin, down more than 11% and carrying on with the downward trend. Said David Tawil, president of ProChain Capital: “You must always proceed cautiously with China — never get too bullish or bearish,” he added: “We’ll have to see what the regulation brings. It’s one thing to say, it’s another to do.”
China’s crackdown on Bitcoin has created immediate negative impacts on the cryptocurrency market, however, it would take time to observe its consequences in the long run. Keep following Tokenize Blog for more market news and investment guides!
Subscribe to Tokenize Blog
Get updated with our guides, tips, and market news to help you in your investment.
Follow Tokenize Exchange on Facebook, Telegram, Medium, Twitter, Instagram.