What is the reason for the ban of Cryptocurrency Mining in China?

Blockchain companies continue to leave China amid tightening regulations. What is this connected with and why in the future the country is likely to only increase pressure on the Cryptocurrency industry?.

Since mid-May, the bitcoin rate fell by 48%, to $ 34 thousand. Cryptocurrency quotes began to decline sharply after the tightening of regulation of the Cryptocurrency market in China.

Until recently, the country was one of the leaders in the industry, including in terms of the number of bitcoin miners.

However, now everything has changed, in the last two months, not only miners, but also companies from the cryptosphere have begun to leave the country.

On July 5, blockchain company IBC Group announced plans to close data centers for cryptocurrency mining located in China.

The company will transport equipment and employees from the PRC to the USA, Canada, the United Arab Emirates, Kazakhstan, Iceland and various countries in South America.

How it all started?

On May 19, three Chinese financial regulators, which oversee online financial transactions, the payments market and clearing, banned local financial institutions from providing services related to cryptocurrency.

The statement explained that virtual currencies are not supported by real value, their prices are easy to manipulate, and trading contracts are not protected by Chinese law. After that, the bitcoin rate fell by a third per day, to $ 30 thousand.

Liu He, Vice Premier of the State Council of the People’s Republic of China, called for stronger control of crypto mining and trading in the country a few days later, and the government news outlet Xinhua issued an article titled “Urgently eradicate the hype and chaos around virtual currency.

” It goes on the market, transactional, technological, and compliance risks that come with trading and using cryptocurrencies.

Against the backdrop of negative rhetoric regarding cryptocurrencies, miners began to stop work in China at the end of May . BTC.TOP and HashCow were the first to stop mining bitcoin.

Also, the suspension of mining and customer service from mainland China was announced by the crypto exchange Huobi.

And in June, four Chinese provinces introduced a mining ban in two weeks. For example, the authorities of Sichuan, a major mining center for cryptocurrency, have approved measures to discourage mining in the region. First of all, this affected 26 companies that worked officially.

The People’s Bank of China (PBOC) also held a meeting with representatives of five Chinese banks and the Alipay payment system. The regulator instructed financial institutions not to participate in transactions with digital assets.

Following this, the Agricultural Bank of China (ABC), the country’s third largest bank, issued a warning against the use of digital assets.

The bank stated that it would block all such transactions and terminate relationships with clients who carried them out.

What is the reason?

According to Vitaly Mankevich, President of the Russian-Asian Union of Industrialists and Entrepreneurs, the Chinese authorities have established a goal to promote their own digital yuan, thus they are battling and will combat illegitimate cryptocurrencies at the state level (RASPP).

The Chinese, he claims, are “cleaning” the space by prohibiting mining.

“China wants to make the yuan the world’s main reserve currency, and this can only be done through a new technology, which is the digital yuan.

Therefore, China will fight against any unofficial currencies that alienate the country from world leadership in a new area, ”Mankevich is sure.

He suggested that the tightening of cryptocurrency positions from a number of national provinces will also intensify, since Bitcoin is not controlled, which means it poses a threat.

Digital yuan

At the end of June, passengers on the Beijing subway were able to purchase tickets using the digital yuan.

And two weeks earlier, the Industrial and Commercial Bank of China (ICBC) was the first in the country to allow its clients to convert digital yuan into cash and vice versa.

According to Nick Avramov, co-founder of digital asset consultancy firm DeFi Agency, Alibaba’s fintech startup Ant Financials’ IPO was stymied last year, in part due to Chinese authorities’ fears that the Alipay payment system will compete with the digital yuan.

A similar trend is currently being witnessed in the case of cryptocurrencies, according to him.

“It’s not about the miners themselves, but about supporting the widely adopted digital yuan.

Fundamentally, nothing new has been adopted recently – the existing restrictions have already been spelled out in regulatory acts since 2017, but now they have begun to be observed, “Avramov said.

In September 2017, the People’s Bank of China banned initial offerings of tokens (ICOs) in the country and threatened to revoke licenses to platforms that do so.

Therefore, according to the expert, now the Chinese authorities are not revising their policy in relation to digital assets, but are implementing the practices and laws adopted earlier.

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