- China has taken several steps, and made several pronouncements, to try and outlaw cryptocurrencies.
- Chinese government has most recently targeted to root out BTC and its mining from its borders.
- Such actions have already spurred an economic exodus of those entrepreneurs to the U.S., Kazakhstan, and Malaysia.
For years, the government of China has taken several steps, and made several pronouncements, to try and outlaw cryptocurrencies under the guise of negative impacts to the economy, environment, and society at large. Yet, Bitcoin has not only survived, it has thrived!
According to Cambridge University’s proprietary Bitcoin Mining Map below, shows that through April 2021 China continued to be the global leader by 9x, despite the government’s best efforts to stop it. The bar chart below clearly shows the wide gap in Bitcoin hashrate, with the U.S. in a distant second place.
Hashrate is a volume measure of Bitcoin’s proof-of-work consensus methodology that awards miners fractional amounts of BTC to verify transactions and maintain the integrity of the global Bitcoin network. Basically, it’s a measure of mining speed derived from the number of computations per second.
However, Bitcoin mining requires two critical elements for continued success – lots of cheap electricity to run the computational servers and lots of access to money to fund the capital investment to set up and keep the massive mining operations running.
It’s that second element – commercial financial lending – that the Chinese government has most recently targeted to root out Bitcoin (at least Bitcoin mining) from its borders.
On Tuesday, June 22nd the People’s Bank of China (PBC) announced in a statement that it was having “discussions” with China’s banks and lending institutions to persuade them from working with cryptocurrency miners.
“….the Financial Stability and Development Committee under the State Council, and aiming to crack down on the speculative trading of virtual currencies including Bitcoins, to safeguard the properties of the general public and to ensure financial security and stability, the People's Bank of China (PBC) had a regulatory talk with some banks and payment institutions, including the Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Postal Savings Bank of China, Industrial Bank, and the Alipay, on their services for the speculative trading of virtual currencies.”
The statement further outlined the specific reasons for urging financial institutions in China to comply.
“The PBC pointed out that the speculative trading of virtual currencies will disrupt the normal functioning of the economy and the financial market. It will give rise to risks of illegal and criminal activities such as illegal cross-border transfer of assets and money laundering, and seriously infringe the property safety of the public. Banks and payment institutions are to strictly follow regulatory requirements in the Notice on Guarding Against the Bitcoin Risks…”
The statement ended with this stunning admission that the lenders agreed to the banking blockade against Bitcoin.
“The attendees responded that they will attach great importance to the issue and will not conduct or participate in virtual currency-related activities, as required by the PBC. They will make more screening and resolution efforts, and cut off fund channels for speculative trading of virtual currencies.”
If the financing flow gets turned off, operations with a lot of cash “frozen” in their capital infrastructure investments can face serious cash flow issues. If any business is unable to pay its bills, it won’t be in business very long. This action will likely kill Bitcoin mining in China, but it has already spurred an economic exodus of those entrepreneurs to the U.S., Kazakhstan, and Malaysia.
On the Flipside
- A key driver of this anti-Bitcoin action must be China’s accelerating efforts to launch its own central bank digital currency (CBDC). The digital yuan is currently being beta-tested in dozens of Chinese cities.
- China has publicly stated that while it supports use of digital currencies – such as its own digital yuan – it opposes “private” cryptocurrencies.
- That’s because self-sanctioned CBDCs exponentially empower governments with more control, tracking, and monetary monitoring of its people. All of those aspects are anathema to the promise of cryptocurrencies such as Bitcoin.