China to crack down on mining of cryptocurrencies

China will crack down on bitcoin mining, according to an announcement by the government‘s cabinet three days after regulators reiterated their ban of digital tokens in financial transactions, delivering a one-two punch that may further weigh on the cryptocurrency industry after triggering last week’s global sell-off.

The government will “crack down on bitcoin mining and trading behaviour, and resolutely prevent the transfer of individual risks to the society”, according to a statement by 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. 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.

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. “The wording of the statement did not leave much leeway for cryptocurrency mining,” said Li Yi, chief research fellow at the Shanghai Academy of Social Sciences.

The latest 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.

“We should expect the relevant departments, including law enforcement, to come up with detailed measures to ban bitcoin mining in the near future,” Li said.

Bitcoin prices fell as much as 20 per cent to US$33,550 overnight after the committee’s statement on Friday, before modestly climbing back up to US$37,481.

The price volatility of cryptocurrencies was recently exacerbated by comments from billionaire entrepreneur Elon Musk, chief executive of electric car giant Tesla. The latest initiative against bitcoin mining has come after three Chinese state-backed financial associations jointly issued a warning about the risks stemming from volatile cryptocurrencies earlier this week. Some miners, however, appeared confident that Beijing’s bark is louder than its bite, as cryptocurrencies were still being sold in the country as of Thursday.

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