Bitcoin Mining Ban in China: Short Term and Long Term Effects
Bitcoin Mining Ban in China: Short Term and Long Term Effects
Despite the continuous growth of cryptocurrencies, many governments are against the trading and investment of cryptocurrencies. The Chinese government, in particular, has repeatedly warned its citizens against acquiring cryptocurrencies. Additionally, the government has put up several regulations to stop Bitcoin trading and acquisitions in the country. Among a long list of regulations against crypto assets, the Chinese government recently banned Bitcoin mining.
The current ban raises many questions among crypto investors and enthusiasts around the world. Many wonder what the future holds for Bitcoin in the short term, while others question the long-term prospects of Bitcoin in light of this mining ban.
While there are no fixed answers to these questions, we can look at the effects of previous bans on Bitcoin by China to clarify the future of the crypto asset. Furthermore, the events that occurred after these bans can help to determine the prospects of Bitcoin in the short term and long term.
As a result, this article will review the effects of China's 2013 and 2017 regulations against Bitcoin. The article will then conclude with a detailed explanation of why we expect a remarkable rise in Bitcoin price in the long term.
Effects of 2013 Chinese Ban on Bitcoin
In 2013, central bank authorities in China recognized Bitcoin as a digital currency. However, China's central bank placed a ban on financial institutions from handling Bitcoin transactions. At the time, China Securities Regulatory Commission put out the notice to all financial institutions.
The notice stated that bitcoin was not lawfully protected tender and that the digital currency had no "real meaning." As a result, the China Securities Regulatory Commission banned financial institutions from supporting transactions involving Bitcoin.
This ban was later extended to payment companies and third parties that supported transactions involving Bitcoin. This action negatively affected the value of bitcoin at the time as coin price suffered a sharp drop from $1242 to $480 due to the announcement.
We must state that this ban was not an outright ban on Bitcoin trading in the country. On the contrary, the Chinese central bank released a statement stating that individuals could freely trade Bitcoin at their own risk.
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In a new move targeted at Bitcoin, the Chinese government has intensified activities to stop Bitcoin mining. The current action is not new, as the People's Bank of China charted plans to limit bitcoin mining operations in 2019.
According to a report in the Wall Street Journal on the ban of Bitcoin mining in the country, the People's Bank of China stated that bitcoin mining "consumes a large amount of electricity and also encourages a spirit of speculation in "virtual currencies." The report also indicated that bitcoin mining strays from providing economic value to the Chinese economy.
Additionally, government officials were encouraged to enact and implement policies that would make it difficult to mine Bitcoin in the country. These policies may include increased taxation on electricity for miners, tax on land use, and stricter environmental policies.
In line with this directive, government officials in Sichuan, a province in China, ordered 26 major Bitcoin mines in the region to investigate their power usage. Shortly after the announcement, the price of bitcoin sharply dropped from $40,896 on June 15, 2021, to $32320 by June 21 by 4:00 pm. The value of the coin price further fell to $28,893.62 by noon on June 22.
This ban has severe implications for Bitcoin because Chinese miners play an important role in the total supply of Bitcoin mined worldwide. Currently, china houses over 71% of bitcoin miners in the world. Similarly, in April 2019, bitcoin mining in China accounted for more than 70% of all mined bitcoins worldwide.
The ban on Bitcoin mining in China has resulted in Bitcoin miners relocating to countries that offer cheap electricity and provides an opportunity to create centralized mining operations.