Why Did China Ban Crypto?

Bitcoin mining's hub has shut down completely... 

So, why did China Ban Crypto?

Let me explain...

Concerns over gambling fraud and money laundering led China's Central Bank to designate all crypto-related activities unlawful.

The statement triggered a significant dip in markets, with some investors rushing to sell their holdings.

The price of Bitcoin plummeted over 10% after the announcement before swiftly reclaiming some of its lost territories.

China's crypto crackdown comes as governments worldwide, including the United States, continue to form formal stances on digital assets and virtual currencies.

For a long time, China has been wary about cryptography.

Chinese banks were barred from dealing with Bitcoin in 2013.

China outlawed initial coin offerings (ICOs), the cryptocurrency equivalent of an IPO, in which a cryptocurrency firm sells coins or tokens to acquire cash.

They have been declared an unlawful fundraising method by the People's Bank of China, the country's central bank.

China has recently targeted crypto-mining businesses operating within its borders.

China's state planner indicated an interest in prohibiting Bitcoin mining in 2019.

The Chinese government also banned cryptocurrency mining in many regions earlier this year, including Sichuan, the Bitcoin mining hotspot.

The impact of the prohibition on China's own state-backed digital currency, e-CNY, is still unknown.

China imposed prohibitions identical to those issued in 2013 and 2017 in May, prohibiting financial institutions and payment firms from providing services linked to cryptocurrency transactions.

Though banks and payment companies claim they support the initiative, the repeated restrictions show the difficulty of closing loopholes and detecting bitcoin-related transactions.

On 24 September 2021 Friday, ten government entities, including China's People's Bank, released a unified statement pledging to crack down on cryptocurrencies, describing the technology as a threat to people's assets and a tool for assisting illicit activities such as money laundering.

On the announcement, the price of Bitcoin dropped by around 8% but eventually recovered its footing. Smaller coins were affected much harder.

Friday's announcement underscores Beijing's determination to stifle the Chinese crypto market, which is the most thorough and expansive yet from the country's key authorities.

According to the authorities, buying, trading, and otherwise dealing in cryptocurrency is now outright prohibited in the world's most populous country.

The country is home to a very large concentration of the world's crypto miners so as recently as April, had a 46% of the share of the global hash rate, a measure of the computing power used in the mining and the processing, the statement is stated by the Cambridge Bitcoin Electricity Consumption Index.

Due to cheap electricity prices in places like Inner Mongolia, China has been a favourite mining destination in the past.

Still, the government is presently suffering an energy crisis and is attempting to become carbon neutral by 2050, a goal that bitcoin is making more difficult to achieve.

China accounted for 75% of Bitcoin energy use in 2019. With the additional limitations announced on Friday, that figure is expected to decline even further to 46% in spring 2021.

So why did China ban crypto?

The Chinese government's decision to regulate cryptocurrencies is motivated by a desire to establish greater control over the country's economic activities.

Allowing Bitcoin and its brethren to flourish in any country takes some power away from state actors.

Bitcoin and its brethren, both were designed as a tool for facilitating transactions without institutional authorities such as banks or governments, so allowing them to flourish in any country takes some power away from them.

China is now attempting to ban bitcoin by developing its own digital currency, dubbed eCNY, which will be backed by the government.

eCNY, on the other hand, the bears just a passing resemblance to bitcoin and does not employ blockchain, the distributed ledger technology that underpins all cryptocurrencies.

The announcement of additional limitations in China was not the only event this week that weighed on cryptocurrencies.

Following the bankruptcy of Evergrande, China's second-largest construction business, bitcoin, and other cryptocurrency prices dropped on Tuesday.

Evergrande's earnings have failed to keep up with its extravagant spending, and the company is now more than $300 billion in debt.

The stock market collapsed due to the failure of such a large business and a big selloff in cryptocurrencies.

Investors always tend to cash in on their riskier assets when the markets are volatile, and cryptocurrencies are among the riskiest investments you can make.

From Monday to Tuesday, Bitcoin's price fell by 5.7%.

Bitcoin is also attracting the attention of US officials.

In an event organized by the Washington Post on Tuesday, Securities and Exchange Commission Chair Gary Gensler spoke at length about cryptocurrencies, and he wasn't enthusiastic regarding their future.

Gensler has stated that he does not believe cryptocurrency markets have a "long-term sustainability" and that the SEC is working "overtime" to develop new laws for cryptocurrency markets that are likely to be far stricter than what is now in place.

To date, China has accounted for most global crypto mining, with the United States a distant second.

The University of Cambridge estimates that China accounted for 47 percent of all crypto mining in April 2021.

In comparison, the United States accounted for 16.8% of global crypto mining during the same month.

That will likely change shortly.

A crypto-mining exodus was happening even before the formal announcement.

Authorities in the Chinese region of Inner Mongolia confiscated over 10,000 laptops custom-built for crypto mining only days after the information, according to Coindesk.