So what did China do to crypto? Well, first, the Chinese government banned crypto transactions, and banks aren’t allowed to process them. Second, the Chinese government has halted the development of crypto infrastructure, which means banks aren’t able to process the transactions. Lastly, the Chinese leadership has expressed apprehension about competition and losing control, so they’ve been cracking down on crypto infrastructure.
Chinese cryptocurrency miners are moving overseas
As more investors in virtual currencies look to the United States to power their mining operations, Chinese cryptocurrency miners are moving overseas. According to a report by IHS Markit, China’s crackdown on cryptocurrency mining has displaced roughly 25% of the world’s hash power. The countries affected by the crackdown include Central Asia, Latin America, and Europe. Chinese cryptocurrency miners are also moving to the United States because the country’s business and political climate is more crypto-friendly than in China.
While this may sound like a good idea, the fact is that it will take months for the mining farms to be relocated to the United States. In addition, moving the machines to North America will cost US$10 per terahash of processing power. The abrupt closure of Chinese cryptocurrency mining operations is part of a crackdown on cryptocurrencies by the Chinese government. The government considers cryptocurrencies a threat to financial stability. Since 2017, the Chinese government has been cracking down on bitcoin miners, which run large computer banks and consume vast amounts of electricity.
Chinese financial institutions are cut off from providing support to crypto-related businesses
A recent diktat issued by the People’s Bank of China (PBOC) aims to clamp down on cryptocurrency-related businesses. This comes in the wake of a crackdown by the government on crypto mining in Sichuan, the world’s largest hydro-powered bitcoin mining area. China also rocked the crypto markets last month by repeating its long-held ban on mining and trading cryptocurrencies.
China recently ordered banks and payment platforms to stop providing support to crypto-related businesses. The ban came after the government banned its citizens from working for crypto-related firms. The ban resulted in a steep decline in the price of bitcoin, a major digital currency. Chinese miners will rebase their electricity-guzzling servers overseas to avoid the ban. Chinese startups linked to the trade are also shifting their operations overseas.
Chinese government wants to maintain social stability and national security
The CCP is a communist party that has held sway over China since 1949. The CCP was founded on Marxism-Leninism principles. Tensions between the CCP and the Kuomintang (KMT) eventually erupted into a civil war in 1949. The Communist Party won the war and the modern Chinese state is still governed by a Leninist system, similar to those of North Korea, Laos, and Cuba.
However, the government is concerned about the impact of these digital currency companies, which are considered critical for driving China’s goals and strengthening the Party’s power base. Because of these concerns, the Chinese government is cracking down on internet companies, requiring the government to evaluate the companies’ data security procedures. Meanwhile, the Chinese government is also blaming the booming internet economy for widening social disparities and addressing their discontented populace.
Bitcoin’s scarcity makes it vulnerable to a speculative bubble
A large part of Bitcoin’s price volatility can be attributed to its lack of liquidity. This makes it vulnerable to speculative bubbles, which can lead to a dramatic price rise. Despite the lack of liquidity, the Bitcoin market is relatively easy to manipulate. Bouoiyour and Selmi highlight the role of speculation as a primary driver of Bitcoin price movements.
Several experts have compared the popularity of Bitcoin to the Dutch tulip craze in the seventeenth century. The Bank of England’s Andrew Bailey has warned against investing in cryptocurrencies, while Nobel laureate Nouriel Roubini has described the technology behind Bitcoin as “the mother of all scams.”
Bitcoin’s price plummeted after collapse of megadeveloper
The collapse of a construction giant in China has led to a massive selloff in cryptocurrencies. Bitcoin fell about 5.7 percent Tuesday as more people and institutions sold off their digital assets. Many compared the collapse to the 2008 financial crisis. The collapse of Evergrande has also caused investors to reduce their exposure to risk in the market. Despite the price drop, however, there are positive signs.
The fall in bitcoin and other cryptocurrencies was also fueled by a joint statement from ten government agencies that denounced the digital currencies as a potential threat to citizens’ wealth and facilitation of illegal activities. Bitcoin reportedly plunged 8% on the news. It recovered slightly later in the day, though lesser-known cryptocurrencies suffered even more. The underlying issue with Bitcoin has been the lack of regulation.