The Bitcoin mining hotspot has shut down for good. On the 24th of September, China’s Central Bank deemed all crypto-related transactions unlawful, citing worries about betting fraud and tax evasion as justification. Bitcoin’s price plunged roughly 10% after the news but soon regained some lost ground after the news. As governments throughout the globe continue to unite their official viewpoints on crypto assets and virtual currencies, China’s crypto clampdown is a shock. The proposal to outright prohibit cryptocurrencies isn’t shocking since the Chinese government has consistently been skeptical about it. To better understand the ramifications of China’s statement, its potential influence on the exchanges, and if it is profitable to buy bitcoin nowadays, we’ve put together the following post.
When the Ban was announced, What Was China’s Official Position?
For a long time, China was dubious about cryptocurrency. Chinese banks were barred from dealing with Bitcoin in 2013 when the government issued a nationwide ban. Initial coin offerings, the crypto counterpart of an IPO, were prohibited in China in 2017 after the country’s financial regulators deemed them illegal. Fundraising using these methods has been deemed unlawful by China’s official bank, the People’s Bank of China (PBOC).
The Chinese government has lately targeted crypto-mining activities in China. According to the official planner, bitcoin mining might be banned in China shortly. In addition, the Chinese government banned cryptocurrency mining in many regions early this year, including Sichuan, the heartland of Bitcoin mining. The impact of the prohibition on China’s own state-backed digital currency, e-CNY, is still unknown.
Chinese miners have dominated crypto mining until recently, with American miners trailing far behind in global output. According to recent research, China accounted for 47% of all crypto mining activity. On the other hand, US mining accounted for 16.8 percent of the global total for the month. This is expected to change soon. There was already a crypto-mining movement taking on before the formal announcement. Chinese officials confiscated more than 10,000 laptops custom-built for cryptocurrency mining in Inner Mongolia only days after the onset.
“China FUD” became a popular topic on Twitter after China’s formal statement that digital money should be banned. One of the first things people pointed out was that short-lived downturns accompanied China’s past remarks regarding crypto, so they shouldn’t be taken as gospel. In fact, by the next week, Bitcoin’s price had returned to its pre-announcement level.
What Are the Consequences of the Ban on Bitcoin Exchanges on the Market?
Chinese buyers are causing a lot of problems for crypto exchanges right now. Nevertheless, a few members of Congress weighed in immediately after the Chinese legislation, which has yet to be ratified by the US government. The exchanges have been moving operations offshore for some time. To move things forward, you need cloud infrastructure, developers, and management, all of which can be located anywhere in the world, whether it is San Francisco, Taipei, Singapore, or Shanghai. However, the major effect we’ve probably seen is in the miners, and most of those miners [are] migrating abroad or have already finished relocating overseas. Even if a crypto exchange is based outside China, it is subject to China’s prohibition if it does business with Chinese nationals.
Cryptocurrency peer-to-peer lending companies — tiny businesses that link individual lenders and borrowers — are now just a fraction of China’s initial cryptocurrency peer-to-peer lending startups. In light of the Chinese ban, international crypto exchanges are reportedly cutting relations with Chinese customers in recent days, which involves penalties for those exchanges doing business with Chinese customers. However, the firms themselves mostly keep their mouths shut about the situation. It should be simpler to mine for digital currency outside of China when the Chinese quit the market since computers are used to enter bitcoins into circulation and authenticate cryptocurrency transactions. Smaller companies may have easier mining since they aren’t up against the huge Chinese companies.
Several countries are mulling the possibility of adopting digital currencies, eliminating the need for a financial intermediary such as a bank. Proponents of cryptocurrencies argue that these new tokens may be able to realize the benefits of decentralized digital assets such as bitcoin without being subject to the price fluctuations that these assets are known to exhibit. The Chinese government may ultimately adopt a viewpoint that is more tolerant of digital currencies not sanctioned by the state; nevertheless, this will be conditional on meeting stringent criteria for what is or is not lawful.