Beijing has doubled down on its efforts to rein in the country’s cryptocurrency industry, targeting crypto mining activities for the first time and prompting many exchanges and miners to suspend mining-related services.
Vice Premier Liu He and the State Council said in a statement on Friday that it was necessary to “crack down on Bitcoin mining and trading behavior, and resolutely prevent the transmission of individual risks to society.”
The statement followed an announcement by three Chinese state-organized industry associations on May 18 that companies in the financial sector — including banks and online payment processors — should not provide any crypto-related services.
“China always has had a love-hate relationship with Bitcoin,” said Marie Tatibouet, Chief Marketing Officer of crypto exchange Gate.io. “However, this is the first time that the highest level of the Chinese government has spoken out so explicitly against Bitcoin mining.”
Rapid reaction
Chinese crypto companies wasted little time responding to the announcement with a wave of operational changes.
Huobi Mall, the cryptocurrency mining arm of heavyweight crypto exchange Huobi, suspended its Bitcoin mining services and sales of mining equipment.
“In order to protect the interests of investors, a portion of services such as futures contracts, [exchange-traded products], or other leveraged investment products are temporarily unavailable to new users from a few specified countries and regions,” Huobi said in an announcement on Monday.
Jiang Zhuoer, cheif executive of BTC.top, one of the biggest mining pools in China, announced on Weibo that it would no longer provide joint mining services to mainland Chinese users, and that it would operate at more crypto mining farms outside China.
The past week’s burst of regulatory activity is not the first in which China has tightened rules governing the crypto sector. The country’s central bank prohibited finance sector businesses from cryptocurrency brokering and trading as long ago as 2013.
During the initial coin offering frenzy of 2017, China imposed stricter regulations on blockchain operators and effectively outlawed cryptocurrency trading and ICOs. Many crypto exchanges moved their headquarters outside of China but continued doing business from satellite offices in the country, albeit at their peril.
Short, sharp shock?
Some Chinese observers say the recent clampdown is simply a way to take the froth out of an over-hyped crypto market, and that regulations will be gradually eased, as has been the case in previous years. However, others say the fresh regulatory offensive could usher in fundamental changes for China’s crypto miners.
“I think it really depends on how the launch of [China’s central bank-backed digital currency] goes”, Tatibouet said.
Beijing’s ambitious CBDC project, officially known as e-CNY, has undergone at least 11 rounds of extensive testing in selected cities, and the government is aiming to launch it formally in Beijing next year.
“I think digital currencies do not appear to be a threat to the CBDC, so I think everything will continue to operate simultaneously,” Tatibouet told Forkast.News. “But if there does seem to be some resistance there, we might encounter more issues.”
Jiang said the circumstances of the crypto mining industry in China were not as bad as many believed. He said that amid the expansion of China’s mining industry, business that underpinned the functioning of the financial system had become linked to mining, which had led the government to worry about risk spreading to society.
“Bitcoin mining will be conducted as normal,” he said. “But there will be fewer huge crypto mining farms in China. Instead, the number of small and medium-scale crypto mining farms and individual miners will increase.”
Both Jiang and Tatibouet said Beijing’s crypto mining ban would force Chinese crypto miners to relocate outside of China. Jiang compared the expected Chinese crypto mining exodus to the departure of crypto exchanges in 2017 during the government’s crackdown on ICOs,
Tatibouet said, however, that the tightening of rules might bring positive change for the industry more globally and in the longer term.
“Bitcoin’s network hashrate will be far more evenly distributed,” she said. “This ensures that the fate of a multitrillion-dollar economy will no longer be dependent upon the whims of a single government.”