Chinese Vice Prime Minister Liu He told a group of financial officials last Friday that the government would crack down on Bitcoin mining and trading. The reason for this decision is said to be China’s goal of achieving financial stability. While China has been taking steps to limit the use of cryptocurrencies for many years, this focus on mining is fairly new.
An official at mining company BIT.TOP suggested that the Chinese government is trying to prevent a massive flow of capital into crypto mining. However, this does not mean that individuals cannot continue to mine themselves. He reckoned that half of the country’s mining equipment could be shut down due to recent measures, which mainly focus on large mining operations.
The regulatory risk of continuing mining activities has already stopped the Chinese mining company BIT.TOP, which will from now on mainly offer mining services in North America.
The consequences for cryptos could be severe. China accounts for more than 65% of the world’s Bitcoin mining, according to statista.com, although it’s hard to say what the long-term consequences this will have.
Bitcoin and stocks of crypto-related companies were visibly shaken after China’s decision. Bitcoin prices fell by up to 13% on Sunday. Although China’s move to stop mining remarkably coincided with Elon Musks’ decision to stop accepting Bitcoin for buying Teslacars, which did not go down well in the crypto world either. Musk’s decision to stop buying Bitcoin had all to do with the enormous amount of carbon that China produces from mining. Bitcoin is now trading at around $ 38,000 per coin, well below the nearly $ 64,000 high it hit on April 13th.
So are we entering another dark crypto period? Ulrik K. Lykke, Executive Director at the crypto hedge fund ARK36, doesn’t think so.
“The crypto markets are currently processing a cascade of messages fueling the bear fall for price developments. Last week, more than $ 250 billion evaporated from the Bitcoin market alone. In absolute terms, such a number may seem astronomical. However, in percentage terms, such market moves are common and we have seen similar ones in the past. 2017 saw price drops in the region of 35% + several times before the price peaked.
When it comes to Elon Musk’s tweets or the negative comments from the PBOC (The People’s Bank of China), it’s important to distinguish their true impact from their perceived impact. Realistically, it’s not the first time Elon Musk’s tweets have been erratic and, frankly, wrong; Likewise, China has already changed its stance on cryptocurrencies several times. News like this can be very resonant and easily stir market sentiment, but it often turns out to be inconclusive in the long run. The crypto markets are extremely emotional and their participants tend to overreact to events that they perceive as negative. “
Lykke also mentioned that things might look bleak about Bitcoin’s outlook right now, but he said that historically this is just one more hurdle for Bitcoin to overcome and a small one compared to what it’s in the past has mastered.