While China accounts for approximately 65% of the world’s bitcoin mining, the nation has a complicated relationship with digital assets.
The first big crackdown took place in 2013, and in May of 2021, another major regulatory crackdown took place. What does the most recent crackdown mean for the rest of the world? Should Bitcoin miners and investors be worried?
Let’s examine what’s going on with these recent regulations and what they may mean for the future of Bitcoin.
China’s Complicated History With Bitcoin
China’s most recent crackdown is best understood in the context of its history of Bitcoin bans.
2013 Ban on Bitcoin
As I mentioned, the tumultuous relationship between China and Bitcoin began in 2013, when the People’s Bank of China (PBOC) and its IT ministry imposed a ban that prohibited banks from handling Bitcoin transactions, citing Bitcoin’s lack of central authority as the reason behind the ban.
While people were still allowed to trade Bitcoin at this time, the PBOC warned of future restrictions. The warnings quickly turned into a reality, as less than two weeks later, BTC China stopped accepting deposits in Chinese yuan.
This was allegedly due to the PBOC requesting Chinese payment processors to cease engagement with digital asset exchanges in the country by the end of the year. Similar to what’s happening now, this led to a drop in the price of Bitcoin.
2015 Ban on Bitcoin
But, while Bitcoin couldn’t be used as tender for goods and services in China, it could still be traded and mined.
A resurgence in Bitcoin soon followed, and by August 2015, four Chinese Bitcoin mining pools made up half of the Bitcoin network’s hash rate.
2017 Ban on Bitcoin
Fast forward to 2017, and China again implemented another restriction that shifted market sentiment. In September of that year, local exchanges in China announced they were ceasing operations following a warning from the PBOC in January of 2017.
Although this wasn’t the case, the PBOC claimed that digital assets were being used as a tool for criminal activities. Once again, the news sent the price of Bitcoin tumbling, as it dropped from $4,661 on September 7th to $2,946.62 on September 14th.
However, three months later, Bitcoin hit a new all-time high of $19,834.93, once again demonstrating that dips in the market can quickly recover.
2019 Ban on Bitcoin
In April of 2019, the National Development and Reform Commission published a draft seeking out the public’s opinions on industries they either want to promote or restrict. While Bitcoin mining was listed as an industry the public wanted to phase out, when the final plan was published, it had been removed from the list.
What to Know About China’s Latest Announcement
This all brings us to May of 2021, when the Chinese government released a statement saying they need to crack down on Bitcoin mining and trading. The impetus behind the crackdown is somewhat unclear, with the government citing “societal risks” as their reasoning.
Still, the public took the statement seriously, and four geographically important regions in China issued noticed to shut down mining activities. But, as discussed above, the Chinese government has made similar threats in the past. These threats either haven’t come to fruition, or they haven’t had any long-term effect on the power of Bitcoin and Bitcoin mining.
While the crackdown did cause a dip in the market, Bitcoin will more than likely recover.
The Digital Yuan
However, one thing that’s different this time around is that China now has plans to roll out its own digital currency – the digital yuan. The digital yuan will be highly controlled by the government, as it’s both programmable and traceable. This will give the Chinese government enormous control over the economy.
Not only will Chinese policymakers be able to track every consumer choice made in the economy, but they could also have more power over spending behavior by making the currency expirable by a certain date.
The digital yuan could also threaten the US dollar, which is why investing in Bitcoin now is a wise choice.
Are China’s Environmental Concerns Valid?
While the reasons behind China’s latest threats are vague, they did mention that environmental concerns surrounding Bitcoin factored into their decision.
However, their “environmental concerns” are likely just a scapegoat to cover up their real agenda. If the environment was really a concern, then China would also be aiming to cut back on coal emissions.
Not to mention, the total amount of energy used to produce Bitcoin is minuscule, so pinning their regulations on the environment doesn’t make much sense. In fact, a recent report found that Bitcoin uses half of the energy that traditional banking systems use.
What Does This Mean for North American Miners?
While China’s crackdown may not slow down Bitcoin’s power, it could have an impact on miners in North America. China will likely cut down on purchasing new equipment, which will open a window of opportunity for the US to purchase this mining equipment instead.
And, with China making things tougher for digital asset miners and investors, the US is now in a strategic position to become a bigger influence in the global Bitcoin economy.
While China is busy cracking down on digital assets, new policies are being put in place in the US to make the country more digital asset-friendly.
For example, Texas just passed House Bill 4474, also known as the “Virtual Currency Bill.” Signed into law by Governor Greg Abbot, the bill officially recognizes blockchain and digital assets under commercial law by placing them under the Texas Uniform Commercial Code.
Additionally, Core Scientific and other major North American miners have formed the Bitcoin Mining Council, a voluntary forum that aims to provide educational resources in a transparent manner.
While China’s dominance in the Bitcoin industry may continue to wane, one thing is for certain: Bitcoin isn’t going anywhere, and the world of Bitcoin mining is just getting started.
To learn more about Bitcoin, check out these five tips for potential Bitcoin investors.