China Sending Mixed Cryptocurrency Signals

With an extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest includes Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency ecosystems. 

China continues to play hardball with its Bitcoin miners. For example, last month, China’s Qinghai province announced a ban on bitcoin mining operations. Qinghai is the latest coal-based crypto mining hub that is set to completely eliminate the Chinese based mining industry. The news from Qinghai came on the heels of another crackdown notice against some crypto miners in Xinjiang and follows Inner Mongolia, which had previously imposed similar restrictions on Bitcoin miners. The Qinghai local government cited the central government’s concerns about high energy-consuming industries. In addition, the Qinghai local government also cited environmental pollution as well as the State Council’s directive to maintain financial stability by cracking down on crypto mining and trading. 

And then in May, the State Council of China told local governments to crack down on crypto mining and trading. China’s government has been trending in this direction for a while. Inner Mongolia implemented regulations on energy-consuming firms in April. Similarly, another Bitcoin mining hub Sichuan stated that it may end a local energy policy of which miners had taken advantage. Before this crackdown, China’s share of the bitcoin mining industry was in decline even before the country’s crackdown in May. According to the Cambridge Centre for Alternative Finance (CCAF), China accounted for a 46% share of the bitcoin mining industry in April 2021, compared with 75% in September 2019. The methodology for calculating Chinese overall hash rate is based on China’s share of the power of computers connected to the bitcoin hash rate. As can be seen from the Evolution of Country share, two of the main beneficiaries of the Chinese bitcoin miner crackdown appear to be the U.S. and Kazakhstan. 

Although the Chinese government has been harsh to Bitcoin miners, it is welcoming blockchain industries with open arms. For example, out of China's 34 provinces and province-level cities, 33 have enacted policies to accelerate blockchain innovation as reported by one local media report, citing research from Chinese blockchain news site ChainNews. 

For example, the newest issue of China's most important economic-planning document, the Five-Year Plan, named blockchain a nationally strategic technology for the first time. This Five-Year Plan calls upon all local governments to spur innovation in the field blockchain. In addition, fourteen governments are offering financial rewards to companies that excel in blockchain innovation. As just one example, the city of Ganzhou is promising 17.5 million yuan ($2.7 million) to companies that become unicorns, according to the report. A unicorn company is commonly defined as a startup whose valuation reaches $1 billion. In addition, Shanghai is offering permanent residency to highly skilled workers who move to Shanghai and who work on blockchain, the report said. 

China continues to send mixed signals to those involved in the Chinese cryptocurrency ecosystems. Although China has made clear (on numerous occasions) that it does not want its power grid utilized as a power source tethered to Bitcoin miners, China continues to entice those individuals and corporations that work on the underlying blockchain technologies: the programming backbone of cryptocurrencies, such as Bitcoin.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity whatsoever with which Thomas Wettermann has been, is currently, or will be affiliated. 

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor. Thomas Wettermann is not an independent financial advisor.