In mid-June 2021, Bitcoin had fallen below $30,000 for the first time since January 2021, which was half of what it had been worth just 3 months before. This was attributed to fears that China is trying to ban cryptocurrencies completely.
China takes action
The Chinese government began to issue warnings about trading and mining of cryptocurrencies in May 2021. It told the country’s financial giants and institutions that they will have to stop dealing in cryptocurrencies. In response the top three mining regions in the country began to take actions against miners, and reports suggested that the government met with major banks again to make clear that banks cannot be involved with cryptocurrency transactions.
This may have caused the cryptocurrency crash as according to a report by the University of Cambridge in April 2020, China provided 65% of Bitcoin’s Hash Rate with three main provinces making up most of the computing power. A Hash Rate is a measure of the computational power per second used when mining which is the speed of mining.
Those three regions had followed the government’s mandate by working to curb cryptocurrencies. Xinjiang had shut down a major mining hub, also Inner Mongolia had started the process of a total mining ban. In mid-June the province of Sichuan set in motion a ban on mining, by telling companies which provide electricity to cut the power to any mining operations they discovered.
The importance of China in cryptocurrency mining became evident when in April 2021 a coal plant flooded in Xianjiang which caused it to shut down for a weekend, which was reported to cause a 35% fall in the Bitcoin mining capacity.
As a result of China moves in the cryptocurrency market during 2021, over the period Bitcoin dropped from $55000 to around $32000. It is difficult to know how much of a role that China actually had on the overall cryptocurrency market, as other factors such as Elon Musk tweets about cryptocurrency and his Saturday Night Live appearance happened. around the time. Additionally, the rise of NFTs (non-fungible tokens) which included platforms such as Sorare and NBA TopShot.
The Chinese government has wanted to tighten it reins on Bitcoin for years, beginning, in 2013 when it banned banks from handling it and getting involved in transactions of Bitcoin, and then further in 2017 they banned initial coin offerings.
In conclusion China is not the only country that has been making policies around crypto currencies. Others such as Iran have put a temporary ban on mining during the summer months of 2021. However, it’s clear that it had on impact it on the crypto crash in 2021 due to its dominance in the global markets and the governments lock down on mining, although it is extremely difficult to be certain about the overall role it played because of how volatile the cryptocurrency market is.
–Tiwa Ajayi-Obe, Kings College London