Opinion: China’s bitcoin crackdown is not its final act
Asia editor Karry Lai looks at the steps being taken by the world’s second largest economy to curb the rise of bitcoin in the country, primarily by preventing widespread mining operations
The Chinese government has made a number of policy moves that reiterate its stance against cryptocurrencies, especially bitcoin, indicating that strong enforcement and crackdown will lie ahead. It is sending a clear signal that the government means business in tackling its carbon emissions, with aims to meet net zero goals by 2060, and by targeting areas of systemic financial risks. This is especially emphasised by China’s work to go full steam ahead to widely circulate its central bank digital currency (CBDC), the e-RMB.
On May 21, China’s State Council’s Financial Stability and Development Committee, chaired by premier Liu He, vowed to crack down on bitcoin mining and trading activities to maintain financial stability and minimise financial risks. This marks the first time the highest level of the Chinese government has chosen to take a stance on bitcoin mining.
Across China, bitcoin mining operations have shut down since the May announcement, especially in Xinjiang province where the majority of mines were located. Meanwhile the Inner Mongolia Development and Reform Commission has started its cleanup of bitcoin mining activities in the province, which have been banned since April 1. The province has been under pressure to limit its emissions, particularly around energy use from coal-fired power plants. Although Sichuan province has a high percentage of hydropower in its energy mix, it was not spared from the crackdown and bitcoin mines have closed after a ban was issued on June 18.
A number of crypto exchanges, including Huobi and Okex, have suspended services to Chinese residents, and bitcoin mining operations such as Btc.top and Hashcow have stopped services altogether. Miners have since migrated to other countries such as the US, Russia, Indonesia and Kazakhstan.
In its strongest statement on cryptocurrencies since 2017, the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China reiterated bans that have been implemented since 2013 barring financial and payment institutions from offering cryptocurrency services, such as registration and clearing. This time around, the ban expanded to payment and settlement. Additionally, virtual currencies cannot be used by trust and fund produces as investments.
See also: Inside India’s potential crypto ban
While cryptocurrency exchanges and initial coin offerings are banned in China, and the country does not accept them as legal lender, it is not illegal for individuals to hold cryptocurrencies. But since the first crackdown in 2013, trading has been severely limited after the People’s Bank of China prevented banks and payment companies from offering bitcoin-related services. During the initial coin offering (ICO) craze in 2017, China banned ICOs and made it illegal to exchange digital money unless operators are located offshore. The emphasis is on offshore, so trading did not disappear, it just moved elsewhere to exchanges such as Binance.
Four years later, cryptocurrency trading has become heated again in China, where investors have been piling into the bitcoin bull market before the bubble burst.
Will it take another four years for China to further crack down on cryptocurrencies? Probably not, especially when it wants to push for the wide adoption of the e-RMB. Perhaps things will really cool down when cryptocurrency ownership is outright banned.
Elsewhere in Asia, India is taking an approach that is similar to China’s. It is mulling a potential ban on cryptocurrencies, but is developing its own CBDC. This anti-cryptocurrency stance is opposite of other Asian jurisdictions such as Singapore, where cryptocurrency exchanges are allowed but must be licenced and can include retail investors as clients. Hong Kong SAR is taking a middle stance, where the Financial Service and Treasury Bureau has proposed that exchanges must be licenced by the Securities and Futures Commission and can only provide services to professional investors. Up to this point, exchanges can choose to opt in and apply for a licence but do not have to.
What is clear is that there will continue to be wide divergence on regulatory approaches to cryptocurrencies. For investors, all this uncertainty promises an exhilarating ride ahead.