Like clockwork, China has released a number of statements over the past few days that shook the markets and, in part, the public perception of Bitcoin.
Why like clockwork? Because among many long-time HODLers, the announcement has invoked memories from the past few years, which have seen numerous warnings, restrictions, and bans from China. In fact, China's history of Bitcoin bans dates back to 2013:
In a joint notice issued in early December 2013 by the People's Bank of China (PBOC), the country's financial watchdogs, and its IT ministry, a ban was imposed that prohibited banks from handling Bitcoin transactions. The reason cited for the ban was that Bitcoin is not backed by any nation or central authority. While individuals were still allowed to engage in Bitcoin trading, the PBOC hinted at plans to further regulate cryptocurrency exchanges in the future.
And sure enough, less than two weeks later, BTC China, at the time the world's largest exchange by trading volume, surprisingly stopped accepting deposits in Chinese yuan after the PBOC had allegedly asked Chinese payment processors to cease engaging with crypto exchanges in the country by the end of the year. Similarly to what bitcoin holders are facing at the moment, the news triggered a drop in the Bitcoin price, from more than $1,100 on November 30th to $559 on December 18th.
Fast forward four years, in the middle of another bull run, China yet again dampened the market sentiment: in September of 2017, it was made public that local exchanges in the country had been ordered to cease operations. The move followed a warning by the PBOC against exchanges in January 2017, which had foreshadowed as much. On September 14th, BTCC announced that it would shut down by the end of the month.
A website by the PBOC stated at the time that cryptocurrencies were being "increasingly used as a tool in criminal activities such as money laundering, drug trafficking, smuggling, and illegal fundraising."
Again, the news sent Bitcoin tumbling, this time from around $4,200 on September 9th to $3,100 on September 14th. As is well-known, Bitcoin was to hit a new all-time high above $19,000 just three months later.
Once local exchanges had been put out of business, citizens turned to overseas exchanges, often accessing them via VPNs.
A draft published by the National Development and Reform Commission (NDRC) in April 2019 sought the public's opinion on a list of industries it wanted to promote or restrict. Among those it wanted to phase out: Bitcoin mining, which it said was among the sectors that did not adhere to relevant laws and regulations, were unsafe, or polluted the environment.
Yet half a year later, when the final plan was published, Bitcoin mining had been removed from the list.
The latest news from China comes at what many bitcoiners may see as an inconvenient time, as Bitcoin has already been battling intensified criticism and a short-term price drop following Tesla chief executive Elon Musk's weekend of Bitcoin complaints. After a reiteration by China's Internet Finance Association, Banking Association, and Payment and Settlement Association of China's 2017 stance on Bitcoin was widely misinterpreted as a new Bitcoin ban, the Financial Stability and Development Committee of China's State Council followed the announcement up with a new statement summarizing a State Council meeting by Vice Premier Liu He.
As part of the committee's commitment to control financial risk, the statement notes the need for China to "crack down on Bitcoin mining and trading behavior and prevent individual risk from being passed to society."
While it is not clear what consequences the statement will have, a ban on Bitcoin mining in the country doesn't seem impossible given China's recent crackdown on mining in the Inner Mongolia region.
Although some have pointed out the recent drop in Bitcoin's hash rate from its all-time high of around 180 exahashes per second (EH/s) to 151 EH/s at press time as a direct consequence of the news, it remains to be seen what effect China's latest warning will actually have. In fact, Bitcoin's hash rate appears to have been on a downward trend since May 15th, several days before the announcement. Blockstream CEO Dr. Adam Back noted that it might be related to miners moving their equipment for the upcoming rainy season in the country.
China's latest statement was issued directly by a state department and emphasized by its Vice Premier — which matters, according to Primitive Ventures founding partner Dovey Wan.
"The seriousness of news is def [sic] more so than normal China FUD," Wan Tweeted on Friday, citing the high profile of the sources sharing the announcement. She further predicted a sizeable drop in hash rate in the near future as a reaction to the news, as well as further clarification coming from the Chinese government in the next few weeks.
Yet China's long history of Bitcoin controversy and often blurry stance on the asset has left many wondering what to expect from the developments. And not everyone is worried by the prospect of a blanket ban on mining in China.
Castle Island Ventures general partner Nic Carter shared a previous Tweet on the occasion, reiterating that a mining ban would be good for Bitcoin in multiple ways. Among them, Carter listed accelerated hash rate decentralization, higher margins for U.S.-based miners, and decarbonization of Bitcoin mining as hash rate would be relocated, likely to renewable energy sources.
China hosts the majority of Bitcoin hash rate — around 65% of it at the end of 2020, according to the Cambridge Center for Alternative Finance's Bitcoin mining map. While that in itself is no centralizing factor for the network, further distributing the hash rate can't hurt. Should China ban mining and the hash rate drop while miners search for a new home, the Bitcoin price wouldn't directly be affected, unless the market was to react to such a development.
"While [a ban would be] disruptive for miners in China, its [sic] a nothing for bitcoin and miners outside," Back, generally skeptical of the idea of a ban, further noted on Twitter.
Bitcoin appears to be on its way to recovery from its latest drop to the $33,000 range. At press time, Bitcoin is trading just below $38,000.
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