Jason Simon provides insight into China’s crackdown on cryptocurrency mining

At the end of last month, China’s State Council signaled that it was going to crack down on cryptocurrency mining. Bitcoin’s (BTC) price plummeted by 30% as a result, and the entire industry was a little concerned. Chinese Vice Premier Liu He told a group of finance officials that the government would “clamp down on bitcoin mining and trading activity” to ensure financial stability, but there seems to be more to it than that. Jason Simon is a cryptocurrency and FinTech expert, and explores what the decision means.

While individual miners and traders may be able to slip through the cracks, larger commercial mining companies in operation in China will likely need to begin looking for alternative mining hubs with less rigorous regulatory regimes. China hosts around 75% of the world’s BTC mining capacity, its hashrate, because it has established technology supply chains and extremely inexpensive electricity. Cryptocurrency mining requires huge amounts of computing power, which translates into high levels of energy consumption. “In the summer, when rains are plentiful,” explains Simon, “miners flock to Sichuan’s hydropower stations. These have a glut of supply during these months and are located in areas where tapping into the national power grid is extremely difficult.”

However, all of that could soon become a thing of the past because of the new directive on cryptocurrency mining. China has said that the move is necessary for the country’s economy; however, there are likely ulterior motives at work. China is still planning on introducing its central bank digital currency (CBDC) next year, and shutting off access to other cryptocurrencies is a way to ensure it flourishes. “China’s CBDC is already questionable because it is anything but decentralized,” adds Simon, “and this decision to cut off miners is likely another example of how the country is not going to give up control of its financial system.”

Not all of the jurisdictions in the country agree with the decision. Once the center of global BTC mining, the Sichuan province in southwestern China has not been quick to implement the central government’s mandate to cut down on cryptocurrency mining. It receives a lot of economic benefit from the activity and, although it has started to tell companies they need to leave by September, it has been reluctant to push the industry out.

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