China Finally Bans All Cryptocurrency Use: What It Means
Since 2013, China has attempted to eliminate cryptocurrency use in the country. On 24 September 2021, the People's Bank of China, the country's central bank, announced a blanket ban on all cryptocurrency transactions. It also banned all crypto mining activity. According to the financial regulator, virtual currency seriously endangers people's assets. This latest ban is not the first time the Communist nation has tried to get rid of digital coins. In 2013 and later in 2017, the Chinese government issued similar bans. However, people continued transacting with Bitcoin and altcoins like Ethereum, Dogecoin and Litecoin through online foreign crypto exchanges.
2021 saw China intensify its crackdown in cryptocurrency use. Currency holders were warned that continuing to transact with digital currency online would generate severe penalties and no protection. It made it clear those found guilty of illegal activities will face prosecution. The Chinese government pressured the sector from all sides in an effort to demoralise crypto traders. In June, it instructed banks and payment services to stop supporting virtual currency payments. Although this is not the first time China bans crypto in the country, the move is bound to have various consequences on the market and other regions.
What's Different This Time?
Given the several warnings China issued against cryptocurrency use in the past, what makes the most recent one different? The statement China's central bank released was the most equivocal so far. It was expansive and detailed, leaving no room for ambiguity. Also, various ministries showed their support for this move. Besides the People's Bank of China, the latest crypto ban involved nine other institutions, including the police, supreme court and security and foreign exchange regulators. It is the first time that different regulators have come together to prevent digital currency use. The involvement of other parties indicates that different regulators could enforce the ban. It signifies the commitment of the Chinese government to frustrate cryptocurrency transactions.
The statement got rid of loopholes that allowed foreign exchanges to provide their services to locals. Since the announcement, some services have already begun withdrawing from the Chinese digital currency market by refusing any new users. It means that Chinese residents who have, so far, been able to transact through Bitcoin and altcoins across various sectors would have to see new alternatives. Online gambling is one industry bound to suffer since it has had the fastest adaption of crypto use. A quick look at a Litecasino review of Martin Hill gives you an idea of how that works.
The Effect on Mining
One concern expressed amid the ban is that mining, the computing process that creates cryptocurrency, consumes a lot of energy. Blockchain technology, which is the system that facilitates crypto transactions, requires the verification of records on distributed computers. The tasks involved in running the blockchain are called mining. This process randomly gives coins to the people carrying out these tasks. China is, or was, a cryptocurrency mining central. The country offers cheap computer hardware and even lower electricity costs. Therefore, compared to other regions, mining in China was attractive.
The country had a global hash rate of 46%, which shows mining computing power consumption. In September 2019, 75% of the global Bitcoin energy use was by China. This figure dropped to 46% amidst all the pressure. A majority of miners have moved their operations out of China. Regulatory authorities and the government worried that the high energy use from mining was detrimental to environmental objectives. The National Development and Reform Commission intends to cut off the electricity supply and financial support to mining operations. It instructed local officials to avoid preferential tax treatment, watch out for call in loans and unusual power usage.
What Happens to Digital Currencies?
Bitcoin, which accounts for the largest market share in the cryptocurrency market, felt the ban's aftermath the most. When China intensified its crackdown in May, Bitcoin took a 30% hit in a day. The 24th of September statement saw the digital coin shed more than $2,000, a decline of approximately 8.9% to settle at slightly over $40,000. However, Bitcoin bounced back during the weekend. Due to Bitcoin's influence, other altcoins also tumbled in value in the wake of the ban. Other blockchain-related shares, such as listed miners and crypto exchanges, experienced losses. Most businesses recovered in a few days, which is a testament to what the sector can withstand. Exchanges with China-based customers will face the harshest consequences as they struggle to pull out.
In the past, the market has had similar performances, where Bitcoin loses value then recoups in a few days. Analysts say that the China crypto ban is not expected to have any lasting effects. Some analysts have gone as far as to say that the ban is good for Bitcoin. The more China attempts to restrict cryptocurrencies, the more appealing they seem because it shows they are a threat to the Communist regime. Over the last several years, virtual currencies have become increasingly popular, thanks to continued adoption across different industries. A growing number of businesses now accept digital coins as payment. Digital coins operate on a peer-to-peer network and don't discriminate among currency holders. They fill gaps left by fiat currency, and as long as there is a need for crypto, the sector is here to stay.
The biggest question now is whether this ban will have a long-lasting effect. The Chinese government wasn't very successful in the past in stopping cryptocurrency transactions. Previously, courts recognised crypto as property, which afforded personal use some protections. However, it remains to be seen how the situation unfolds this time around. One thing that's clear, though, is that China stands to lose a lot, particularly in mining revenue. Whatever happens in the region, it doesn't look like cryptocurrency will suffer too much. In fact, China's interference might just strengthen the role of digital coins in the global economy.