When the Chinese Bitcoin crackdown took effect, many speculated that the industry would never recover. Amazingly, however, the ban highlights both the sector’s resilience and the entrepreneurship of the miners who keep the blockchain wheel spinning.
Although the People’s Bank of China (PBOC) deemed crypto-related activities illegal in September, bitcoin enjoyed a remarkable year in 2021, breaking its previous all-time high (ATH) as institutional players joined the party. Far from representing the death knell, the famous ban hardly had an effect on the larger scheme of things.
Anatomy of China’s War on Cryptocurrency
Anyone who has expressed interest will know that China has never been so positive about Bitcoin. As Meltem Demirors, chief strategy officer at CoinShares noted in September, “This should be the 20th time China has banned bitcoin.”
So, why was this crackdown any different? In essence, because all the cards were now on the table and all state powers were used to enforce the ban. Whereas in the past, Chinese financial institutions were banned from providing services related to cryptocurrency, now all activities related to cryptocurrency – including trading and mining – are banned.
In what has been dubbed the “Great Mining Migration: miners based in provinces such as Xinjiang, Inner Mongolia, Sichuan, and Yunnan quickly turned off their rigs and fled to new pastures: Kazakhstan, Russia and North America. Meanwhile, the hash rate fell by as much as 50% before rebounding dramatically. interesting.
There are certainly many reasons why Bitcoin is banned in China. Not only are lawmakers worried about asset volatility, but they, like many governments around the world, are troubled by their inability to influence it. Moreover, the energy-intensive nature of bitcoin mining — about 40% of Chinese bitcoin mines are coal-fired by some estimates — threatens to undermine Beijing’s commitment to reach carbon neutrality by 2060.
Of course, it didn’t take a genius to realize that CCP was unambiguously highlighting its state-backed digital currency. According to experts, the People’s Bank of China (PBOC) is likely to be the first to launch a fully-fledged central bank digital currency (CBDC).
In light of subsequent events, China’s withdrawal from the stage can only be seen in a positive light. After all, consider what has happened since the ban was announced: Bitcoin reached a new all-time high of over $68,000; The first exchange-traded fund (ETF) for BTC futures launched in the US, allowing investors to buy and sell exposure to the asset off exchanges; The United States has become the dominant mining center in the world.
This last point should be noted: the dominant mining position is no longer an authoritarian country but a democratic one. Moreover, while Chinese politicians take on bad bitcoin at every opportunity, many US policy makers have embraced the asset class, drawn up plans to accept bitcoin tax payments and even allow employees to withdraw their bitcoin salaries.
US investors are also likely to be reassured by China’s waning influence on the mining scene. Especially since companies like Lancium are investing heavily in Texas bitcoin mines that are powered by renewable energy.
green shoots to progress
Saying there’s been a green revolution in bitcoin mining may be gilding for a tulip, but there has certainly been a renewed focus on sustainability this year. In May, Elon Musk and Michael Saylor announced the formation of the Bitcoin Mining Council, a project focused on promoting the adoption of greener mining initiatives.
Featuring many of North America’s largest bitcoin miners — including Argo Blockchain, Blockcap, Core Scientific, Galaxy Digital, HIVE Blockchain, Marathon Digital Holdings, Riot Blockchain and Hut 8 Mining — the board is committed to standardizing energy reporting requirements and future proof of industry. .
Efforts in places like Texas should also help with this task: About 16 gigawatts of new wind and solar projects are set to come to West Texas over the next year alone.
Against this backdrop, it should come as no surprise that bitcoin has continued to thrive, particularly among institutional investors. According to CoinShares’ latest flows report, Bitcoin saw more than $114 million in institutional inflows at the end of November, despite a 12% price drop. Meanwhile, the latest ETF generated $1 billion in assets under management in its first two days – becoming the fastest fund to ever reach this milestone.
After a turbulent year, bitcoin miners are now looking ahead to 2022 and expecting the next publicly traded company to add BTC to its balance sheets. In the coming years, the Chinese Bitcoin ban may be seen as a positive watershed moment for the industry.
This is a guest post by Sadie Williamson. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.