Tighter scrutiny, supervision loom for cryptocurrency market, Chinese state media warns

Xinhua’s commentary on Sunday reminded consumers not to believe in the ‘myth of wealth creation’ from speculative trading of cryptocurrencies
That followed a statement from the State Council, China’s cabinet, of a further crackdown on bitcoin mining and trading

Bitcoin

Celia Chenin Shenzhen

Published: 6:00pm, 23 May 2021

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Cryptocurrency activities in China will face greater scrutiny and supervision, state media warned on Sunday, as bitcoin’s global sell-off resumed on Friday amid Beijing’s latest crackdown on the trading and mining of digital tokens.

Communist Party mouthpiece Xinhua said in a commentary published on Sunday that tighter supervision and scrutiny are in order for the cryptocurrency market.

“Compared with traditional investment tools, the risks in the virtual currency market are extremely high, as the market is not mature but with strong volatility, high speculation and lack of clear trading supervision rules,” Xinhua said. Its commentary also reminded consumers not to believe in the “myth of wealth creation” from the speculative trading of cryptocurrencies.

The commentary followed a statement from the State Council’s Financial Stability and Development Committee – chaired by Vice-Premier Liu He, the Chinese president‘s top representative on economic and financial matters – that indicated a further crackdown of bitcoin mining and trading in the country.

A technician inspects bitcoin mining machines at a facility operated by Bitmain Technologies in Ordos, Inner Mongolia on August 11, 2017. Photo: Bloomberg

That statement, however, still stopped short of an outright ban on cryptocurrency mining. It also did not elaborate on the measures involved or scale of this crackdown.

The government, which has banned financial transactions of bitcoin and other tokens since 2019, had turned a blind eye towards the cryptocurrency mining farms in Inner Mongolia, Sichuan, Xinjiang and other mainland locations until now.

“How to prevent virtual currency speculation and transaction risks has always been a concern of the regulatory authorities,” Xinhua’s commentary said. “Therefore, tight supervision is a general trend.”

China’s latest crackdown comes amid its experiment with a sovereign digital currency, a move that Deutsche Bank said could usurp some cryptocurrencies over time. Chinese financial institutions, banned from handling transactions that involved cryptocurrencies, are embracing the digital yuan.

China crackdown could be ‘turning point’ in future of bitcoin

In Huaqiangbei, a Shenzhen district known as the world’s largest electronics market, vendors of graphics cards used in cryptocurrency mining rigs seem unfazed by the government’s crackdown on cryptocurrency activities.

While they are aware of the declining value of bitcoin, a number of vendors said prices of graphics cards and mining machines have not fallen because of the ongoing global chip shortage. One vendor indicated that cryptocurrency values have always been volatile.

Other vendors, however, expressed concern about the possible collapse of bitcoin and other cryptocurrencies because of China’s latest crackdown.

“Cryptocurrencies will have to be cracked down when it challenges the national currency,” said one netizen in microblogging platform Weibo who gained dozens of likes. “Every economy and currency require regulations.”

Bitcoin prices fell as much as 20 per cent to US$33,550 overnight on Friday, before modestly climbing back up to US$36,997 on Sunday afternoon. The price volatility of cryptocurrencies was recently exacerbated by comments from billionaire entrepreneur Elon Musk, chief executive of electric car giant Tesla.

Bitcoin can still be bought in China after latest crackdown

The State Council committee’s statement on Friday also highlighted the central government’s commitment to meet its clean energy and reduced carbon emission goals. The heavy consumption of bitcoin mining clashes with China’s vow to reduce carbon dioxide emissions by at least 65 per cent by 2030, relative to 2005 levels, and then achieve carbon neutrality by 2060.

Cryptocurrency mining requires massive amounts of electricity to run the large computer server arrays needed to do the complex calculations required for cryptocurrency transactions, as well as for the air conditioning needed to cool these facilities.

China is the world‘s largest cryptocurrency mining location, accounting for 65 per cent of the bitcoin hash rate, a unit of measure for the processing power used by the bitcoin network to verify transactions and mine new tokens of the cryptocurrency, according to estimates by Cambridge Bitcoin Electricity Consumption Index.

This article appeared in the South China Morning Post print edition as: Beijing warns of more scrutiny amid bitcoin sell-off