The National Development and Reform Commission (NDRC), China’s state planner, has published a list of industrial activities it wants to ban. Bitcoin, a digital currency is on the list as the government labels bitcoin mining as an industry that causes wastage of energy and environment pollution. The news has shaken the firms that are involved in this cryptocurrency mining. China is the leader of the world’s hardware industry designed to mine bitcoin and other digital currencies although such activities fell under a regulatory grey area recently.
NDRC will record public opinions on a revised list of industries that it wants to encourage, restrict, or eliminate. The public can comment on the draft until 7th May. However, the commission has not set a specific deadline to put a ban on bitcoin mining which might result in the immediate elimination of the industry.
Crypto mining firms are taking advantage of cheap electricity in China, particularly coal-rich Xinjiang and Inner Mongolia provinces. The miners are naturally upset and they are trying to convince the planner to remove mining activity from the list of “undesirable” industries. They are arguing that using surplus electricity for crypto mining is helping the local economy and eliminating the industry would conflict with local interests.
How the news is affecting the bitcoin market?
Bitcoin mining firms that have taken the business seriously will have to move their facilities abroad. They will look for a place where regulations related to digital currencies are relatively less strict and resources are cheaper. Some firms have already taken initiatives to relocate their facilities. For instance, a Beijing-based cryptocurrency mining hardware company Bitmain has moved some of its facilities to the USA. Banning Bitcoin mining will not only knock down mining firms, but it will also cause a huge blow to the hardware companies involved in the production of mining tools. In addition, the news came out when the bitcoin price started to show a bullish trend after a recent collapse.
At the beginning of this month, the bitcoin price increased by about $1000 and on Monday it hit a three month high of $5400. On 11 April the price fell again to $4915. Although this is not a significant change in the short term, the potential elimination of crypto mining in China may have a long-term impact on the global market.
Some experts believe that the bitcoin mining ban in China will drive the price of this currency price higher. As mining cost in China is much cheaper than the rest of the world, the country hosted more than 50 percent of all the bitcoin mining pools. If bitcoin mining is banned in China, the companies will be forced to move their facilities in other countries where mining price is higher. Also, small and medium-sized mining firms will sell their equipment at a cheaper rate or shut down their activities. As a result, there might be a crisis of this digital currency.
The demand-supply rule may then push the bitcoin price higher. The cost to mine a bitcoin is between $5000 and $6000 which is higher than the current market rate. If there is an unexpected drop in demand, the bitcoin market will be very bearish and the miners will not be able to continue business. On the other hand, a sustained demand would give bitcoin a good momentum in the near future which is very expected at this moment.
What is the fate of bitcoin in China?
It is difficult to say for sure whether bitcoin mining is going to be eliminated in China because there are several complicating factors. Although the elimination plan is finalized in its current form, this will not indicate immediate implementation.
To take action against an industry the local government has to comply with the laws of the state despite having an obligation to follow the commission’s recommendation. For this reason, some industries were recategorized from “undesirable” list in the past because elimination was found to be conflicting with local interest.
However, China seems to be strongly determined to get rid of cryptocurrencies. The digital money sector has been under heavy scrutiny in China since 2017 when the People’s Bank of China banned initial coin offerings and in 2018 the country’s top internet-finance regulator issued a notice requesting firms to quit the crypto business, stating that it runs on speculation. On the other hand, the local governments continue to ignore the risks of bitcoin to maintain GDP growth. As the NDRC’s decisions carry much more weight, it is likely that the bitcoin will see extinction in China.
Nils Grossberg is an entrepreneur from Tartu, Estonia. Nils Grossberg graduated from the University of Tartu with a bachelor’s degree in History. He is the co-founder and former CEO of Dagcoin OÜ, the software company behind the development of Dagcoin cryptocurrency and its ecosystem.