The epicenter of Bitcoin mining has called it quits. On Sept. 24, China’s Central Bank declared all crypto-related transitions illegal, citing concerns about gambling fraud and money laundering. The move sparked a sharp drop in markets; some investors raced to dump their holdings, and the price of Bitcoin fell nearly 10% after the announcement, before quickly regaining some lost ground.
China’s crypto crackdown comes as governments around the world — including the US — begin to coalesce their official positions on digital assets and virtual currencies. The Chinese government has long been dubious of cryptocurrency, so the move to ban it outright isn’t entirely surprising. Below, we break down the implications of China’s announcement, its impact on exchanges in the US and elsewhere — and what it could mean for digital currencies in 2022 and beyond.
What was China’s official position leading up to the ban?
China has long been crypto-skeptical. In 2013, the nation banned Chinese banks from handling Bitcoin. In 2017, China banned initial coin offerings — the crypto version of an initial public offering — wherein a cryptocurrency startup sells coins or tokens to raise funds for the venture. The People’s Bank of China, which is the country’s central bank, designated them an illegal form of fundraising.
Read more: Initial coin offerings, explained
More recently, China has taken aim at crypto-mining operations within its borders. In 2019, China’s state planner expressed interest in banning Bitcoin mining. And earlier this year, the Chinese government outlawed crypto mining in various provinces — including the Bitcoin mining epicenter of Sichuan. It’s still unclear how the ban will affect e-CNY, China’s own state-backed digital currency.
How central is China to cryptocurrency mining?
Until now, most of the world’s crypto mining has taken place in China, with the US in a distant second place. In April 2021, 47% of all crypto mining happened in China, according to the University of Cambridge. In contrast, the US accounted for 16.8% of the world’s crypto mining during that same month.
In the near term, that will likely change. Even before the official announcement, a crypto-mining migration of sorts was already underway. And days after the announcement, authorities in the Chinese province of Inner Mongolia seized over 10,000 computers that were specially customized for crypto mining, as reported by Coindesk.
Will the China ban impact the price of Bitcoin?
Following China’s official announcement banning digital currency, “China FUD” began trending on Twitter. Many users were quick to point out that previous Chinese statements about crypto had produced “fear, uncertainty and doubt” — but were followed by short-lived downturns and shouldn’t be taken too seriously. Indeed, by the following Monday, the price of Bitcoin was roughly the same as before the announcement.
Read more: Here’s how much electricity it takes to mine Bitcoin and why people are worried
How does the ban impact cryptocurrency exchanges?
China’s ban extends to crypto exchanges that do business with Chinese citizens — even if they’re located outside of China. Crypto exchanges are now struggling to figure out how to deal with Chinese customers. Coinbase, which is one of the most prominent US-based cryptocurrency exchanges, did not publicly comment on the ban. But investors shunned its debut bond sale in the wake of the announcement, according to Bloomberg.
How has the US government responded?
Though the US government has not yet taken an official position on the Chinese law, a handful of lawmakers were quick to weigh in following the ban:
China’s authoritarian crackdown on crypto, including #Bitcoin, is a big opportunity for the U.S. It’s also a reminder of our huge structural advantage over China.
— Senator Pat Toomey (@SenToomey) September 24, 2021
China banning Bitcoin is a massive mistake with impacts that will be felt for generations. Their loss is our gain and America can and will lead the future by providing a clean power home for Bitcoin miners and all who are building on/with/for #Bitcoin. https://t.co/W4Gcq2e92w
— Mayor Francis Suarez (@FrancisSuarez) September 24, 2021
