How China Rivals Elon Musk in Rattling Crypto Markets
Chinese regulators have long sought to tamp down risks related to the rise of Bitcoin and its peers. The cryptocurrency ethos runs counter to China’s aggressive centralized control of finance, and China is home to a large concentration of the world’s crypto miners, whose need for massive amounts of power complicates efforts to curb greenhouse-gas emissions. The Chinese government’s latest and most explicit ban on all crypto transactions, as well as a pledge to stop illegal mining, is the culmination of years of attempted crackdowns.
1. What are the rules now?
China’s central bank designated crypto-related transactions as illicit financial activity, including services provided by off-shore exchanges. It added that cryptocurrencies, including Bitcoin and Tether, are not fiat currency and cannot be circulated. Separately, the country’s economic-planning agency said it’s urgent to root out crypto mining to meet carbon goals, putting the activity back on a list of dirty industries it wants to eliminate.
2. What led up to this point?
It’s targeted Bitcoin mining, the energy-intensive computing process involved in creating the digital currency and verifying transactions. It prohibited financial institutions and payment service providers from getting involved in crypto trades even tangentially -- like opening a bank account for those who engage in them. In 2017, China told exchanges to stop trading in cryptocurrencies and banned initial coin offerings, or ICOs, which are the equivalent of initial public offerings for new virtual currencies. In May, the State Council -- China’s cabinet -- called for a renewed crackdown on Bitcoin mining and trading activities. China’s central bank summoned officials from major state-owned banks and payment-service provider Alipay to a meeting in June to reiterate a ban on crypto-related services.
3. Is China against all digital currencies?
No. While there’s no launch date yet, the People’s Bank of China is likely to be the first major central bank to issue a digital version of its currency, the yuan, seeking to keep up with -- and control of -- a rapidly digitizing economy. Unlike cryptocurrencies such as Bitcoin, the digital yuan won’t have any presumption of anonymity and its value will be as stable as the physical yuan.
4. What explains China’s concerns?
Cleansing risk from financial markets has been a government mantra for years, as evidenced in the crackdown on fintech giants including Jack Ma’s Ant Group Co. Cryptocurrencies can provide a way to move money out of China, potentially adding to outflows that officials have aggressively set about stemming. As for mining, local governments have grown wary of the industry’s huge energy consumption -- more annually than the entire country of the Netherlands -- at a time Xi’s government has pledged to achieve carbon neutrality by 2060. The trigger at the State Council meeting in May was said to be in part concern that crypto mining has stoked a surge in illicit coal extraction, following a jump in deadly accidents this year.
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