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How did the crypto crackdown in China affect the Crypto landscape in Asia?

photo 2022 02 25+00.03.25

Introduction

The government of China has taken a harsh line against the creation and usage of digital currencies. Even after living in a blockchain technology, the value of Bitcoin, which is world’s biggest cryptocurrency by far, has been halved because of Chinese authorities cracking down on the manufacture and usage of cryptocurrencies. Over 90% of worldwide capacity has been impacted by Chinese provinces banning cryptocurrency ‘mining’ which is the process of the generation of new coins of Bitcoin via complicated computer computations. Power and influence, economic security, and preservation of natural resources are all driving forces behind a long-term attack on cryptocurrencies. Some corporations will discover methods to get around such limits when they are implemented, but once the policy direction is established, regulators will act faster to catch up. China is unlikely to reclaim the top spot in the worldwide Bitcoin network any time soon.

The crackdown

The National Internet Finance Association of China, the Payment and Clearing Association of China and the China Banking Association issued a statement in May prohibiting banks and firms that handle the matter of transactions from engaging in commercial activities which are linked to the crypto industry such as trading, registration, settlement and clearing. These arguments repeat a 2017 notification, but they go further by specifically prohibiting the adoption or application of digital currencies in transactions and settlements, as well as the creation of currency conversion services. To explain these actions, they mostly highlight financial dangers and concerns related to cryptocurrencies, arguing that virtual currencies have “no genuine support value” which also means those are a liquid investment with no fundamental worth) and are extremely manipulable.

Financial institutions are bound by the rules, but consumers are not; it does not ban people from owning cryptocurrencies. However, China’s most popular search engine began censoring a number of search for phrases used in the crypto world in June without warning. Around the same time, the Ministry of Public Security claimed that it had detained over 1,100 people from over 170 criminal organisations suspected of laundering Bitcoin funds.

Inner Mongolia, Xinjiang, Sinchuan, and Yunnan, China’s top Bitcoin-mining areas, adopted steps to restrict mining in the same month, shutting off miners’ electrical sources and forcing them to abolish. 90 percent of the country’s capacity was impacted. Bans were imposed by the ministries of Gansu, Henan and Anhui this month.

Indirect consequences

Some of the consequences are listed down below.

  1. The global scarcity of semiconductors might be alleviated if interest on Bitcoin mining hardware falls.
  2. Depending on the energy mix of the nation, moving Bitcoin mining to another country will either reduce or raise Bitcoin’s environmental footprint.
  3. China’s government will strengthen its own blockchain network and cryptocurrency programmes while tightening restrictions on private virtual currency activities.

Causes for the crackdown

The crackdown is most likely motivated by political, economical, and environmental factors all at the same time.

Stability of finances – The crackdown on cryptocurrencies is a part of a larger campaign to combat financial system instability and misuse. For Chinese officials, the potential of a financial disaster is a constant worry.

Factors affecting politics – For years, the Chinese authorities has advised virtual currency investors to trade their digital assets in order to combat corruption and enhance Party discipline. China is creating its own Central Bank Digital Currency, which is similar to cryptocurrencies in terms of technology but is supported by China’s monetary authority and can be monitored and regulated by the government, unlike cryptocurrencies.

Protection of the environment – Bitcoin mining consumes a lot of electricity. According to reports, the Bitcoin system currently consumes more power than Argentina as a whole, with China accounting for approximately two-thirds of all Bitcoin mining.This is in direct opposition to one of Beijing’s top priorities: the social sustainability of its economy.Bitcoin miners may be lucrative as enterprises as far as Bitcoin rates stay high, but in terms of the amount of electricity they utilize and the impact on the environment they leave in this bitcoin era, they contribute nothing to Beijing’s larger economic goals. They are neither large employers nor a significant ‘future industry’ that Beijing wishes to grow. The present onslaught on Bitcoin appears to be the start of the advanced ordinary. During May, the Financial Stability and Development Committee of the State Council stated that it will continue to prosecute coin mining and trade. A full ban on cryptocurrency ownership and trading may not be out of question, although it is a far-fetched possibility. Even if you do not go that far, keeping it will seem less appealing.

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