Bitcoin took investors on another rollercoaster ride over the weekend after a top regulator in China announced a crackdown on mining, a new tack in the country’s ongoing fight against the cryptocurrency.
The government will “crack down on bitcoin mining and trading behavior and resolutely prevent the transfer of individual risks to the society,” said the statement, which was issued by the Financial Stability and Development Committee of the State Council, the country’s cabinet equivalent. The committee is chaired by Vice Premier Liu He, who acts as President Xi Jinping’s top representative on economic and financial matters.
“The wording of the statement did not leave much leeway for cryptocurrency mining,” Li Yi, chief research fellow at the Shanghai Academy of Social Sciences, told the South China Morning Post. “When all mining activities are banned in China, it will be a turning point for the fate of bitcoin, as a large chunk of its processing power is taken out of the picture.”
The Chinese government isn’t just worried about financial stability, either. A commentary piece in Xinhua News, the Communist Party’s official media outlet, elaborated on the government’s stance, voicing concerns about bitcoin’s role in money laundering, drug trafficking, and smuggling. It also mentioned bitcoin’s profligate energy use. Last week, China warned financial institutions not to participate in crypto-transactions or related services.
China isn’t the only country concerned about the role of bitcoin and other cryptocurrency in illegal activities. Late last week, the US Treasury Department announced that businesses must report cryptocurrency transactions greater than $10,000 to the Internal Revenue Service. “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury Department said. And earlier this month, news leaked that three US agencies, including the IRS, the Department of Justice, and the Commodity Futures Trading Commission, were investigating crypto-exchange Binance for potential criminal violations. A significant portion of illicit bitcoin makes its way through the Binance exchange, according to a 2020 report by Chainalysis.
China’s hardening stance toward bitcoin comes as the highest-valued cryptocurrency is under increasing scrutiny for its outsize carbon footprint. Fewer than two weeks ago, Elon Musk announced that Tesla would no longer be accepting bitcoin to buy one of its electric vehicles. When Tesla’s bitcoin purchase policy was announced, the bitcoin cost of a Model 3 produced about 400 metric tons of carbon dioxide, compared with just 8.85 metric tons to make and drive the car over its lifetime. When Musk canceled the policy—a decision apparently influenced by Ars’ coverage—the Model 3’s bitcoin carbon footprint had swelled to more than 500 metric tons. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions,” he wrote in a tweet.
The bitcoin network demands a staggering amount of energy. Today, it uses as much power as the Netherlands to maintain its normal operations. That load must be particularly obvious to the Chinese government, since a recent Nature Communications paper estimated that 75 percent of all bitcoin mining happens in China.
The combination of bitcoin’s high price and its tremendous energy demand has pushed miners to take extreme positions. Miners in China have flocked to provinces such as Inner Mongolia, where cheap coal power makes mining more profitable. The scale of these facilities reflects how much money investors have sunk into the projects. At least one mining facility in Inner Mongolia draws more than 50 MW. Similarly large operations are popping up in the US, too. In upstate New York, a private equity firm bought and revamped an abandoned power plant just to mine bitcoin. When its data centers are completed, mining will consume 79 percent of the power plant’s capacity, or 85 MW.
China’s warning to bitcoin miners is certain to push many operations out of the country. At least one bitcoin observer said that he anticipates miners pushed out of China will set up operations in Mongolia, Kazakhstan, and Afghanistan.
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