The cryptocurrency market took a dive on Monday after China broadened its clampdown on cryptocurrency mining to the southwestern province of Sichuan, where local authorities confirmed a ban on such operations last week.
Bitcoin, the world’s most widely traded cryptocurrency, fell 6.37% to $33,082 as of 4:50 p.m. Beijing time, nearly half its record high of nearly $65,000 in mid-April. Ethereum, the world’s second-biggest virtual currency, declined 7.12% to $2,023.
The Sichuan Provincial Development and Reform Commission and the Sichuan Energy Bureau issued a joint statement on Friday, demanding the closure of 26 suspected cryptocurrency mining projects by Sunday and ordering local electricity companies to immediately stop supplying power to mining operations. Sichuan is China’s second-largest bitcoin mining province, according to data compiled by the University of Cambridge.
A report by state-backed Global Times showed that the closure of many Bitcoin mines across the region has resulted in a 90% decrease in China’s Bitcoin mining capacity and a one-third reduction of the global crypto network’s processing power.
The University of Cambridge estimated that as of April 2020, about 65% of the world’s Bitcoin mining took place in China – mostly in four Chinese provinces: Xinjiang, Inner Mongolia, Sichuan and Yunnan. Sichuan and Yunnan’s bountiful hydropower has attracted miners to relocate their activities to the rainy summer climates, while Xinjiang and Inner Mongolia boast rich coal reserves.
However, since President Xi Jinping last year pledged to peak the country’s greenhouse gas emissions by 2030 and reach carbon neutrality by 2060, local governments have been under intense pressure to reduce energy intensity – carbon dioxide output per unit of GDP.
Earlier this year, citing the heavy energy consumption required for cryptocurrency mining, the government of Inner Mongolia ordered a halt to the construction of new mining projects and vowed to shut down all existing mining farms. In May, the region set up a dedicated hotline for residents to report neighbors they suspect of being cryptocurrency miners. Following Inner Mongolia, governments in other leading cryptocurrency mining locations, including Xinjiang, Qinghai and Yunnan, also this month announced plans to shutter mining operations.
Apart from the massive carbon footprint created by these power-hungry operations, the volatile nature of the crypto markets represents another cause for concern.
On May 18, three Chinese financial industry bodies reasserted a ban on banks and online payment firms from handling virtual currency transactions, warning against risky speculation by investors. In the wake of the announcement, Bitcoin plummeted to its lowest level since late January on May 19, dropping to about $30,000 at one point. In the same week, China’s State Council declared that tougher regulation will be introduced to suppress bitcoin mining and trading behavior in a bid to prevent and control financial risks.
China’s measures are in line with heightened global regulatory scrutiny over the cryptocurrency industry. In May, US Federal Reserve Chairman Jerome Powell said that increasingly popular digital currencies pose risks to financial stability, indicating that greater regulation may be warranted. Earlier this month, the Basel Committee on Banking Supervision warned that the growing use of crypto assets “has the potential to raise financial stability concerns”.