Cryptocurrency investors are copping it this week as China sweeps in to crack down on the market, calling it “extremely harmful”.
It has been another bumpy week in the world of crypto, as investors in the digital assets were given yet another test of their faith in the form of an eye-watering crash.
Bitcoin began to stabilise around $60,000 overnight, but there are still concerns from some experts and investors after this week saw its value drop nearly 15 per cent from an highest near $69,000.
Many analysts remain positive about the technology’s lorm-term future, suggesting the current pullback could be short-lived and that the market is heading for a new highest in the coming months.
However, there are some warning signs beginning to emerge that appear to have dampened some of the enthusiasm in crypto this week.
There is not a lot of consensus on the exact reasons behind this week’s fall, but one word stands out among all of the analysis — China.
The superpower is flexing its muscles over the burgeoning cyrpto market — calling it an “extremely harmful” practice that threatens to jeopardise the country’s efforts to reduce carbon emissions.
The world’s largest polluter — which has plans to build to build 43 new coal-fired power plants and 18 new blast furnaces — says the mining process by which Bitcoins are created produces far too many carbon emissions.
Overnight, the crackdown on the market continued with Chinese crypto news sites, ChainNews and Odaily, as well as information platform Block123 becoming inaccessible, according to CoinDesk.
It comes after China’s top economic planning body — the National Development and Reform Commission (NDRC) — announced this week it will launch a “full-scale” clampdown on cryptocurrency mining.
It says the next stage in the crackdown will focus on the industrial-scale mines and the role of state-owned businesses in the industry.
Announcing the move, NDRC spokeswoman Meng Wei said crypto production and trade produce “prominent risks,” and slammed the industry as “blind and disorderly”.
She said the NDRC said it would raise electricity prices for any institution found to be abusing its access to subsidised power to participate in crypto mining.
Authorities have traditionally offered schools, community centres, or other public welfare institutions lower prices for electricity.
The move is suspected to be one of the main reasons the crypto market took a downward turn this week, and it is not the first time China has flexed its muscles.
Back in June, the market crashed after Chinese authorities moved in to shut down massive bitcoin mining operations within its borders — meaning the rate at which Bitcoins were produced dramatically slowed down.
China had accounted for more than 75 per cent of Bitcoin mining around the world, according to research published by the peer-reviewed journal Nature Communications in April.
“This sudden drop in worldwide mining capability slowed transaction times from the algorithmically-set 10 minutes per block to more than 12 minutes per block, signalling to the market that the crackdown was real,” Business experts at Shelly Palmer said of the move.
“Even more Chinese miners went offline. This is no longer lip service or political theatre; China is full-on anti-crypto.”
Since then China has only solidified its position, often citing environmental concerns as a major factor.
“Up to three-quarters of the world’s supply of bitcoin has reportedly been produced in China, but the process consumes vast amounts of electricity, and energy produced by coal-burning plants is a massive contributor to air pollution,” the Chinese government’s propaganda newspaper, the Global Times, stated in September.
However, authorities also see the currencies as a threat, as they could be a way that people can evade strict national controls on money.
The restrictions on decentralised currencies like Bitcoin also comes as the government rolls out a digital version of the yuan, which would allow China’s central bank exercise more control over the flow and exchange of money.
Despite the volatility this week, cryptocurrency has surged about 110 per cent in 2021. Last week, it hit a record high of US$69,000.