China’s top regulators escalated a crackdown on cryptocurrencies by announcing a blanket ban on the mining of cryptocurrencies and associated transactions. This move has come as a major blow to bitcoin and other major coins.
Ten agencies in the country including the foreign exchange, securities, financial, and central bank regulators have vowed to come together to root out illegal cryptocurrency activity. This is the first time Beijing-based regulators have joined hands to impose an explicit ban on all cryptocurrency-related activity.
In May, China forbid financial institutions and payment companies from providing services related to cryptocurrency transactions and issued similar bans in 2013 and 2017.
The recurring bans indicate the challenge that the country is facing in identifying the loopholes in restricting bitcoin-related transactions. However, the payment firms and banks have clearly indicated that they support the effort.
This move comes amid a global cryptocurrency crackdown as various governments from Asia to the United States have expressed their concerns that privately operated volatile digital currencies could undermine their control over the monetary systems thereby posing systemic risk.
Further, the governments are also worried about the increase in financial crimes and investors getting hurt in the process. They are also worried that mining, which is an energy-intensive computing process, could hurt global environmental goals.
Analysts view cryptocurrency as a threat to sovereign digital-yuan which is already at its advanced pilot stage. A top U.S. Republican criticized China’s move in his latest tweet stating, “Beijing is so hostile to economic freedom they cannot even tolerate their people participating in what is arguably the most exciting innovation in finance in decades.”
China’s Social order
The People’s Bank of China announced that cryptocurrencies must not circulate within the country and that overseas exchanges have been barred from providing their services to China-based investors.
It has also barred payment companies, financial institutions, and internet firms from trading cryptocurrencies nationally. The government will resolutely clamp down on virtual currency speculation for safeguarding people’s properties and to maintain social, financial, and economic order.
China’s National Development and Reform Commission has also announced that it would cut off the electricity supply and financial support for mining which hampers the country’s carbon neutrality goals.
Bitcoin, the largest cryptocurrency in the world has dropped by more than 9 percent before paring those losses. Smaller coins as well tumbled after the news spread worldwide.
Will Cryptocurrency bounce back?
China’s crackdown on cryptocurrency has several impacted blockchain-related shares. Despite the shock, the analysts believe that the crackdown would not dent global crypto-asset prices in the long run as companies continue to adopt crypto products and services.
Binance, the biggest cryptocurrency exchange in the world has been blocked in China since 2017.
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Crypto exchanges Huobi and OKEx, which originated in China, have now shifted their base overseas. They are likely to be affected as they still have China users. Tokens associated with these two exchanges have plunged by over 20 percent.
Virtual currency mining had been a major business in China before May and it accounted for more than half of the world’s crypto supply. However, the miners anticipated the crackdown and have been moving overseas.
The head of research at CoinShares said that the biggest loser in all this would be the Chinese. They will be losing about $6 billion worth of annual mining revenue which will now flow to the global mining regions.