Surprised with the real reason why China decided to destroy domestic Bitcoin players

Bitcoin as well as the entire cryptocurrency market in the world is going through a difficult period after the frenzied rally that lasted from last year until now as bad news poured in from the countries that had the biggest impact on the world. this market.

While the US Treasury Department has moved to tighten regulations on transactions related to cryptocurrencies, China, the country that provides the most Bitcoin miners to the world, has introduced a series of measures. tough law.

Not long after Vice Premier Liu He directed a ban on all cryptocurrency mining and trading, Inner Mongolia, the capital of China’s Bitcoin mining industry, published a draft of eight measures. completely ban Bitcoin mining activities as well as cryptocurrencies. These are seen as blows that could batter the global crypto market as regions like Xinjiang in Inner Mongolia account for 20% of all Bitcoin mined.

One of the first reasons cited for these tough measures was the terrible electricity consumption in Bitcoin mining machines, which is comparable to the annual power consumption of many countries around the world. gender. This not only increases the amount of emissions to the environment, but also reduces the power source for other production and business activities.

However, a source with Caixin magazine said that behind the drastic moves of the Chinese government, there are other reasons more important than the terrible electricity consumption of the Bitcoin mining industry.

Many large enterprises neglect their main job to mine Bitcoin

The first is its effect on the business of the enterprise. A Caixin source at China’s Ministry of Industry and Information said:

” Now some of the companies listed on the stock market are underperforming their core business. So they buy Bitcoin miners and invest in mining farms, including mining. participate in external exchanges. The real business is now turning virtual .”

According to public information, many class A companies listed on the stock exchange are also involved in Bitcoin mining. For example, on May 24, 2021, technology company Hangzhou Lianluo Interactive announced an investment of USD 14.3 million in a project with Aoide Capital Limited from April 2019. This investment is for the buy Bitcoin miners, trade cryptocurrencies as well as for an ICO issuer.

Besides, Caixin’s article also said that another reason for the Chinese government’s tough actions against Bitcoin mining is the usefulness of this industry to the economy especially. in the context of serious chip shortages taking place around the world.

A researcher close to China’s central bank told Caixin: ” For many years now, after all, what is the benefit of cryptocurrency mining for the real economy? chipmakers sell chips to miners rather than other industries. Now, the auto industry is also short of chips. ”

One thing to keep in mind though is that while most other industries like cars are using old process chips, Bitcoin miners are using newer and harder process chips to manufacture – similar to the chips in smartphones and computers. Therefore, this impact is only indirect rather than direct to the current chip shortage situation in the world.

Prevent money laundering through exchanges

In addition to the problems in cryptocurrency mining, another focus of the Chinese government’s measures this time is to control and clamp down on cryptocurrency exchanges.

Although China has banned exchanges as well as fundraising activities in cryptocurrencies, it does not prohibit holding and hoarding of Bitcoin and other cryptocurrencies. Therefore, when exchanges move their operations “offshore”, they can still provide services to Chinese users, allowing not only to hold cryptocurrency but also exchange it for coins. Yuan.

Besides cryptocurrencies with volatile values, there are stablecoins with a value pegged to the USD like USDT or BUSD. The stable value makes these cryptocurrencies a convenient means of money laundering.

With the supply of these stablecoins exceeding $100 billion (of which USDT accounts for about 62.61%, USDC accounts for about 20.42% and BUSD accounts for about 8.89%) and total trading volume from the beginning of 2021 Up to now, April 30 has reached about $ 1.6 trillion, of which there is certainly a large amount of transactions coming from China. This makes the Chinese government want to tighten and eliminate cryptocurrency mining and trading in this country.

Despite not introducing harsh measures for Bitcoin mining like Inner Mongolia, in many other areas, Bitcoin mining farms began to regularly face power outages. For example, on May 16-17, the computing power of Bitcoin mines simultaneously plummeted due to power overload in the Sichuan region, China.

Furthermore, a day after the draft regulation of Inner Mongolia was released, the Chinese IP addresses of two Bitcoin mining companies, BitDeer and Mars Cloud Mine, were blocked and users in the country were blocked. must use a VPN service to be able to access the websites of these companies.

So far, it seems that companies operating in the Chinese Bitcoin mining industry have no choice but to move their operations abroad to avoid the above-mentioned strict control measures. Caixin’s source said that they are seeing many equipment manufacturing companies as well as Bitcoin mining companies in China move their operations to other countries, such as Canada, Kazakhstan, Russia or the US. Although these countries do not have the advantage of electricity prices like China, they are considered more crypto-friendly.

Refer to Caixin