China intensifies the crackdown on trading and crypto mining operations making cryptocurrency prices go on a roller coaster ride in the past couple of weeks.
On Monday, Bitcoin dived beyond 10 percent after Beijing unplugged the power of the large crypto mines of their Sichuan province.
China’s regulatory assault on the cryptocurrency has advocates reaching for answers; about why Chinese authorities are cracking down now and what does it mean for the crypto industry.
Why the crypto crackdown?
China needs crypto regulation, with the financial system now gradually in its sights. Bitcoin is the most prominent cryptocurrency and it impossible to be traced by the central bank; making them complex to control.
Chinese authorities banned trading this month to “avoid and control financial risks.“
Analysts claimed that China is worried about the spread of illegal investments and fundraising. Digital currency transactions jeopardize these regulations.
“China does not have an public capital account and cryptocurrencies circumvent this which is an anathema to China’s authorities,” stated Jeffrey Halley, Asia Pacific analyst from trading firm Oanda. As a result, the mining crackdown also opens the gates for China to introduce its digital Yuan. It is already in the pipeline allowing the authorities to watch transactions.
Cryptocurrency creation and trading have been deemed illegal in the middle kingdom since 2019. Meanwhile, Beijing’s most recent actions have led to its comprehensive network of bitcoin miners shutting down.
What makes China important?
China’s energy-guzzling bitcoin data center power approximately 80 percent of the worldwide cryptocurrency trade.
Access to inexpensive electricity and crypto mining hardware has enabled Chinese companies to operate the huge bulk of crypto trades and generate the power-hungry hexadecimal figures needed to mint new digital currency.
China depends on an extremely polluting type of coal, lignite, to create electricity and power some of its mining. Bloomberg forecasted that it will not satisfy its cryptocurrency industry’s needs through sustainable energy until 2060.
Crypto-mining is anticipated to use 0.6 percent of the world’s entire electricity output in 2021. That’s more than the annual consumption of Norway, as per Cambridge University’s Bitcoin Electricity Consumption Index.
Chinese constraints may in part be provoked by the fact that crypto’s massive power requirements have led to a surge in illegal coal extraction, posing a severe danger to the country’s aggressive environmental goals.
Numerous provinces in China have ordered mines to close as the central government plays whack-a-mole with the shadowy sector. Chinese authorities in Sichuan province ordered the shutdown of 26 crypto facilities last week. They also directed power corporations to cut electricity to the energy-gulping mines. The blow on one of the biggest mining provinces tanked the price of Bitcoin to $32,309.
What are China’s digital currency plans?
The middle kingdom launched trials for a digital yuan in March. Its goal is to allow Beijing to conduct transactions in its currency worldwide, decreasing reliance on the US dollar; which remains supreme globally.
“It is about making the yuan more globally available whilst maintaining complete control,” analyst Halley stated.
While countries race to get their digital currencies in a market-leading position; experts say state-sanctioned digital money will not dampen the broader appeal of crypto as a safe place far from the reaches of governments.
“Bitcoin only marginally competes as a payment system,” Leonhard Weese, Co-founder at The Bitcoin Association of Hong Kong, stated:
“At the moment, its main appeal is that it cannot easily be seized, censored and debased.”
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