China block reward mining industry stalls amid news of impending crackdown

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Digital currency miners in China, including HashCow and BTC.TOP, halted all or part of their local operations after Beijing officials signaled a potential crackdown on BTC mining and trading activities was imminent to prevent individual risks from being spread to the social level.

Digital currency mining is a sizable business in the world’s second-biggest economy that some estimates say accounts for over 60% of the global BTC hash rate. Late last Friday, the State Council’s Financial Stability and Development Committee led by Vice Premier Liu He sent the industry into a tailspin when it announced an impending crackdown on the blockchain sector as part of efforts to fend off financial risks.

In response to this latest regulatory measure, industry stalwart Huobi suspended both block reward mining as well as some trading on its exchange for new clients from mainland China. In a notice to clients, HashCow declared it would suspend new businesses in China amid online reports that it also halted buying new ASIC mining rigs.

BTC.TOP, a large domestic mining pool operator, reacted by announcing the suspension of its China business, citing regulatory risks. Its founder Jiang Zhuoer posted on micro blog post site Weibo that its mining business will no longer be open to mainland China.

In the end, Chinese hashpower will flow abroad just like the Exchanges did in 2017, China will play a less significant role in the global hashpower distribution.

— Jiang Zhuoer BTC.TOP (@JiangZhuoer) May 24, 2021

Chen Jiahe, Chief Investment Officer of Beijing-based family office Novem Arcae Technologies, told Reuters news agency that “Crypto mining consumes a lot of energy, which runs counter to China’s carbon neutrality goals.” The crackdown is also part of China’s ramped-up efforts to curb speculative digital currency trading.

Concerns over the upcoming crackdown caused BTC prices to take a beating over the weekend. The speculative token plummeted nearly 50% from its all-time high. Even Vitalik Buterin’s hobby token ETH fell to a two-month low, falling 60% from a record peak hit just a few short weeks prior.

Liu is the most senior Chinese official to order a crackdown on the blockchain sector publicly. This declaration is the first time the state council has specifically targeted digital currency mining activities. The escalation, which comes mere days after three Chinese industry groups tightened a ban on financial institutions and payment companies from providing digital currency-related services.

These groups are the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China. Their joint proclamation states, “Institutions may not offer clients any service involving digital currency, such as registration, trading, clearing, and settlement.”

China had previously banned local digital currency exchanges and initial coin offerings but has not barred individuals from holding tokens or engaging in mining. On Friday, China’s state broadcaster CCTV warned local citizens against “systemic risks” of digital currency trading in a commentary on its website stating:

“Bitcoin is no longer an investment tool to avoid risks. Rather, it’s a speculative instrument,” the broadcaster said, noting the digital currency is a lightly-regulated asset often used in black market trade, money-laundering, arms smuggling, gambling, and drug dealings.

See also: TAAL’s Jerry Chan presentation at CoinGeek Live, The Shift from Bitcoin “Miners” to “Transaction Processors”