Letter #16: Dejà Who? China and the Year of the Bitcoin Bear
Bitcoin is a force to be reckoned with. It operates independently of any central government or corporation, and has seen exponential growth since its introduction over twelve years ago. However, even Bitcoin, the largest and most well-known of all cryptocurrencies, experiences growing pains, and that has been on full display through its various ups and downs in terms of adoption and price. In fact, one of Bitcoin’s greatest strengths is meant to be its resistance to any type of influence by governments around the world. But the Bitcoin community certainly isn’t, as evidenced by its reaction to regulations put out by various Chinese regulators over the past month.
Oops!...China Did It Again
As we’ll discuss later on, China’s approach to Bitcoin has been tepid from the start, and 2021 has been no different. The Chinese government’s latest attack on Bitcoin began in late May when the State Council’s Financial Stability and Development Committee announced its intent to eliminate mining and trading activities. Its stated reasons for the limitations were twofold: Firstly, the Committee believed that speculative cryptocurrency trading had the ability to destabilize other financial markets domestically and internationally. Secondly, the Committee wanted to assist China as a whole to meet its goals of reducing carbon emissions in the near term, having fallen for the disputed argument that Bitcoin mining’s environmental impacts outweigh its benefits.
The response from China’s regional governments has been swift. In only four weeks, the Xinjiang, Mongolia, Yunnan, and Sichuan provinces have all ordered a halt to Bitcoin mining within their borders and have enacted strict enforcement measures to ensure that resident miners turn off their mining machines. The last regional pronouncement was perhaps especially heartbreaking for Bitcoin proponents the world over as the Sichuan province is known for its abundant hydropower, a clean alternative that many experts and fans alike believe will help to green the footprint of Bitcoin mining as a whole.
The crackdown on Bitcoin mining was followed shortly thereafter with a pronouncement from the People’s Bank of China (PBOC) to several major financial institutions instructing them to not provide any Bitcoin-related services to retail or corporate account holders. Bitcoin’s exchange rate reacted to the news as several of the major financial institutions released statements indicating their intent to follow through with the PBOC’s directive. For example, Alipay, the mobile payments service run by Alibaba’s Ant Group, stated the following:
Alipay will immediately cut its payment service related to any virtual currency transaction it spots. Alipay will firmly remove any merchant involved in virtual currency transactions.
In truth, it should come as no surprise that the Chinese government has a special vitriol reserved for Bitcoin. The Chinese government is known for being authoritarian, and for banning any technologies, like Twitter and Google, that its citizens could use to subvert the government's grasp on the country and its financial and political infrastructure. Bitcoin, being outside the control of any government, fits the bill as a threat to the dominance of the Chinese government.