The cryptocurrency industry suffered its harshest blow as China bans all cryptocurrency transactions, including the most popular Bitcoin. China has vowed to root out digital assets mining.
As per Bloomberg reports, all cryptocurrency-related transactions will be considered illegal financial activity. This includes the services which are provided by many offshore crypto exchanges. The people’s Bank of China website says that Tether and bitcoin will not be allowed to be circulated as they are not fiat currencies.
After the announcement, Bitcoin slumped to around $41,000 in New York, falling by 8%.
China has already barred its banks from offering any crypto-related services. Now Chinese officials plan to stamp out further crypto trading due to its association with money laundering, fraud, and excess use of energy. So far, traders have circumvented existing rules to trade by using offshore exchanges and OTC platforms.
At Warwick Business School, Assistant professor of finance Ganesh Viswanath Natraj feels that China’s ban on cryptocurrency trading will have a short-term impact on the currencies valuations but will remain muted in the long term.
According to Clare Mealie, research head at Kaiko, a data provider, cryptocurrency activity had already moved out of the country earlier though probably there are still some offshore Chinese speculators.
Apart from the financial aspect, huge energy consumption is also one of the reasons for the crackdown on this industry. As per Bloomberg sources, China’s economic planning agency has issued a statement saying the to meet carbon goals, crypto mining needs to be rooted out urgently.
The recent power crisis in China has been so severe that it has roughed up commodities from steel to aluminum, and several industries have suffered in the last few weeks due to curbs imposed on them.
China is home to large numbers of crypto miners and was nearly 46% market share of the global hash rate until six months back. As per Cambridge Bitcoin Electricity Consumption Index, hash rate is a measure to compute power used in mining and processing.
According to Vijay Ayyar, Crypto exchange Luno, Asia Pacific head, based out of Singapore, “Chinese regulators have been extreme in their views and reactions historically.” The reason why they have been making statements is that they have sensed that the activity has continued despite the ban and therefore going on an overdrive.
China started the crackdown in May this year against Cryptocurrency mining and trading. This was after they had gone slow in 2019 when it was dropped from a proposed list of so-called dirty industries that required to be eliminated.
The impact of these developments has seen Bitcoin losing its value and dropping from an all-time high of $63,000 to nearly half its value between the period April and July.
