Why China gets tough on cryptocurrencies
Cryptocurrency prices have fluctuated wildly in recent weeks as China intensifies a crackdown on trading and mining operations.
On Monday Bitcoin slumped more than ten percent after Beijing pulled the plug on the massive mines of Sichuan province.
China's regulatory assault on the digital currency has crypto watchers reaching for answers as to the reasons Beijing is clamping down now and what this means for the market.
Why the crypto crackdown?
Beijing craves control, with the economic climate now increasingly in its sights.
Bitcoin, the world's major digital currency, and other cryptos can't be traced by a country's central bank, making them difficult to modify.
Chinese authorities outlawed trading this month to "prevent and control financial risks".
Analysts say China fears the proliferation of illicit investments and fundraising -- it also has strict rules around the outflow of capital.
Crypto transactions threaten these controls.
"China doesn't have an open capital account and cryptocurrencies circumvent this which can be an anathema to China's authorities," Jeffrey Halley, Asia Pacific analyst at Forex trading firm Oanda, told AFP.
However the crypto crackdown also opens the gates for China to introduce its digital currency, already in the offing, allowing the central government to monitor transactions.
While crypto creation and trading have already been against the law in China since 2019, Beijing's latest moves have resulted in its vast network of bitcoin miners shutting up shop.
Why is China important?
China's electricity-guzzling bitcoin data centers power practically 80 percent of the global cryptocurrency trade.
Usage of cheap power and hardware has allowed Chinese companies to process almost all crypto transactions and generate the tedious hexadecimal numbers needed to mint new currency.
China uses particularly polluting kind of coal, lignite, to power a few of its mining and Bloomberg predicts you won't have the ability to meet its cryptocurrency industry's needs through renewable energy until 2060.
Crypto-mining is expected to use 0.6 percent of the world's total electricity production in 2021 -- a lot more than the annual consumption of Norway -- according to Cambridge University's Bitcoin Electricity Consumption Index.
Chinese restrictions may partly be triggered by the actual fact that crypto's enormous power demands have resulted in a surge in illicit coal extraction, posing a serious risk to Beijing's ambitious climate goals.
Several provinces have ordered mines to close as the central government plays whack-a-mole with the shadowy sector.
Authorities in the province of Sichuan ordered the closure of 26 mines last week and told power companies not to supply electricity to the energy-guzzling facilities.
The hit using one of the most significant mining provinces tanked the price of Bitcoin to $32,309.
What exactly are China's digital currency plans?
China launched tests for an electronic yuan in March. Its aim is to permit Beijing to conduct transactions in its currency around the world, reducing dependency on the dollar which remains dominant internationally.
"It really is about making the yuan more internationally available whilst maintaining complete control," analyst Halley said.
But while countries race to get their own digital currencies in a market-leading position, authorities say state-sanctioned digital money won't dampen the wider appeal of crypto as a safe place definately not the reaches of governments.
"Bitcoin only marginally competes as a payment system," Leonhard Weese, Co-founder at The Bitcoin Association of Hong Kong said. "Right now, its main appeal is that it cannot easily be seized, censored and debased."
Source: japantoday.com
