Why China's Crackdown Is Good For The Industry

Market Crash

While this change triggered negative reactions on the cryptocurrency market, it did not come unexpectedly. The Bitcoin energy FUD has been existent since 2017 and became a more pressing challenge in 2021 after the crypto gained massive adoption and widespread institutional acceptance. FUD stands for “Fear Uncertainty and Doubt”, implying that there are quite a lot of reservations about the performance and circumstances revolving around Bitcoin.

In this article, we are going to explore the deciding factors that led to the crackdown of crypto in China and the aftermath of the decision. A deeper insight into the reason for the ban of crypto-related activities in China would enable us to decipher why it is a blessing in disguise for the crypto industry to thrive.

China’s Vs Crypto

Before the crackdown on Bitcoin mining that led to a major mining exodus, the Chinese government had not been receptive to the innovation of cryptocurrencies. In 2013, the nation cracked down on Bitcoin transactions via local financial institutions.

The constricting regulations of the crypto industry increased with a ban on Initial Coin Offerings (ICOs) in 2017 and towards cryptocurrency trading platforms that were allegedly contributing to money laundering and other financial crimes. Cryptocurrency, especially Bitcoin, was also considered harmful to the environment as its mining processes were executed with non-renewable energy.

The current crackdown began with an umbrella association of three entities under the People’s Bank of China restricting cryptocurrency transactions. The joint body consists of the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China.

The body urged all financial institutions within the country to desist from conducting any crypto-related transactions or face heavy sanctions. Alipay, the Industrial Bank, the Bank of China, and the Agricultural Bank of China were urged to cut out similar transactions in June.

The reason for these restrictions is not far-fetched. China does not recognize decentralized finance and does not see it as an industry that should be allowed to thrive. Beijing sees Bitcoin and other cryptocurrencies as speculative and as such are regarded as disruptive agents of the economic and financial order within its jurisdictions.

The Effect of the Crackdown

The crackdown on mining operations and the entire cryptocurrency sector in China posed a very strong challenge to crypto enthusiasts. Watching assets that have swelled to envious heights crashing down in a matter of hours, days, and weeks. The May crypto market capitulation would go down in history as one of the most bearish ever.

Bitcoin’s hashrate swung down heavily too to the lowest levels in no time. The hashrate of BTC is the computational difficulty required to mine Bitcoins, thereby making the blockchain mining difficulty fall low.

China is home to bitcoin miners. The country contributes about 56 to 70% of Bitcoin’s mining. The mining rigs in Sichuan, Inner Mongolia, and Xinjiang operated as major locations for Bitcoin miners. The decline of Bitcoin led to the decline of other digital currencies too, including Ethereum, Binance Coin, Dogecoin, Cardano, and others.

Aside from the external consequences on the overall crypto market, Chinese investors lost direct access to cryptocurrency as major exchanges exited the locality or were withheld from employing financial services in the area. This indirectly led to less input of funds from Chinese investors, reducing the trading volume in the process and affecting the entire market.

The Crackdown is Good for the Industry in the Long Run

Judging from the above reasons for the Chinese government’s embitteredness to crypto, the resultant circumstance is a two-way thing. The rough or negative side of it is what the crypto industry is experiencing now, uncertainty in the market and enhanced volatility. The other side of the coin would be beneficial to the entire industry in the long run.

One of the most obvious positive sides of the crackdown is the decentralization of Bitcoin mining. Just as earlier mentioned, Bitcoin mining had been overly concentrated in China, causing it to be at the mercy of incessant regulatory policies. Now that miners are deserting the nation, they are spreading to other welcoming locations like Texas, Kazakhstan, Russia, El Salvador, Canada, Iran, and other places. These would encourage emancipation from centralized authority so that one location’s downturn would not affect the whole industry anymore.

Another instance is the encouragement of green energy in the cryptocurrency industry. Ethereum for instance would be joining the sustainable energy party as it is gradually upgrading to a proof-of-stake consensus from a proof-of-work protocol. Bitcoin could also employ renewable energy sources instead of coal and fossil fuels for mining.

Finally, the knowledge and popularity of the crypto industry would be exposed to other locations. As miners are spreading, the knowledge and usefulness of blockchain technology would be disseminated to them, making it easier for countries to appreciate the sector and embrace it, the way El Salvador has done.

Summary

The cryptocurrency industry is gradually evolving, and its growth is satisfactory for a millennial industry that came into the mainstream in 2009. At the time of writing this article the crypto market is well over $600 billion and has gone above $1 trillion some months ago.

A lot is still underway for the industry to develop further, and it is good enough that it has broken away from the Chinese monopoly early enough. This would give the industry more room to thrive so that it can attain its full potential. In the future, the crypto industry would likely encourage sustainable development, offer financial growth, and blockchain technology could be a huge part of mankind.

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