China’s Role in the 2021 Cryptocurrency Crash
In June 2021, Bitcoin’s value dipped below $30,000 for the first time since January, after reaching an all-time high of nearly $65,000 earlier in the year. While Elon Musk’s tweets contributed to this price plunge, another significant factor was China’s crackdown on digital currencies.
Historical Stance on Cryptocurrencies
China has consistently maintained a stringent stance against cryptocurrencies. In 2013, the country’s central bank barred financial institutions from handling Bitcoin transactions after the digital coin’s value soared from $100 to $1,000 within a few months. In 2017, China banned fundraising through initial coin offerings (ICOs) and shut down domestic Bitcoin exchanges.
Recent Crackdown Efforts
Recently, the Chinese government has intensified its efforts to suppress cryptocurrencies, aiming to put an end to their mining and speculative activities. In May, Chinese Vice Premier Liu He and the State Council issued a warning emphasizing the need to “crackdown on Bitcoin mining and speculative trading, and resolutely prevent the transmission of individual risks to the social field.”
This came after three Chinese state-backed financial associations raised concerns about the risks arising from the volatility of cryptocurrencies and instructed their members, including banks and online payment companies, not to provide any cryptocurrency-related services.
Impact on Crypto Miners
Following the government’s warning, many cryptocurrency miners, including HashCow and BTC.TOP, halted all or part of their operations in China last month. This had significant repercussions, as Chinese miners reportedly account for as much as 70% of global crypto mining.
In early June, Weibo, China’s version of Twitter, blocked numerous prominent crypto-related accounts, stating they “violated laws and regulations.”
On Monday, the People’s Bank of China (PBOC) met with several domestic banks and payment companies, including Alipay, urging them to tighten restrictions on cryptocurrency trading and directing them to stop facilitating cryptocurrency transactions. These institutions were also instructed to thoroughly investigate and close accounts associated with crypto exchanges and over-the-counter (OTC) dealers, and to promptly cut off the payment channels for such transactions.
Consequences of the Crackdown
The crackdown has forced many miners to shut down, sell their equipment in despair, and exit the industry. Some are relocating abroad to countries like Kazakhstan, according to a Reuters report. It is estimated that China’s crackdown could lead to up to 90% of crypto mining operations going offline within the country, according to Adam James, a senior editor at OKEx Insights.