Over the past month, the cryptocurrency world has been under strict regulation, with the state striking hard at the virtual currency market. First, there was a joint announcement from three major industry associations in the financial sector, followed by a crackdown on bitcoin mining and trading by the Finance Commission, and accompanied by several local governments in the southwest issuing measures to firmly crack down on virtual currency “mining”. These successive developments all indicate that the domestic regulation of the virtual currency market is being raised to a new level.
The price of mainstream cryptocurrencies has continued to fluctuate dramatically due to regulation and other factors, with bitcoin plunging over 35% and ethereum price fluctuating nearly 40% in the past month.
The state has stepped in and regulation has arrived
On May 18, the China Internet Finance Association, the China Banking Association and the China Payment Clearing Association jointly issued the “Announcement on Preventing the Risk of Speculation in Virtual Currency Trading”, which pointed out that virtual currencies do not have monetary properties. As early as 2013, the “Notice on Preventing the Risk of Bitcoin” identified bitcoin as a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated in the market as currency. In addition, the announcement emphasizes that relevant institutions shall not engage in business related to virtual currencies, and that financial institutions, payment institutions and other member units shall not use virtual currencies to price products and services, and shall not directly or indirectly conduct business related to virtual currencies. Obviously, even though a number of foreign institutions, including Tesla, have previously announced that they support the use of bitcoin for payment, this behavior is currently not feasible in the country. The announcement also reminds consumers to be more aware of the risks and calls on them to invest carefully.
The current virtual currency market as a whole has basically taken shape, and many well-known projects in the industry chain have mostly gone through several rounds of big waves. However, for most ordinary investors, the virtual currency market is still in its early stages of development, and the speculative attributes of participating in virtual currency trading are significantly higher than the investment attributes. The previous market driven by animal coins has amplified the market frenzy, and some virtual currency “whites” who did not know and had relevant investment experience before were attracted by the legendary wealth effect of 100 times coins and 10,000 times coins, and blindly participated in the relevant investment activities. This makes the financial risks associated with virtual currency trading further expand and spread. In this situation, it is necessary to remind consumers to strengthen the awareness of risk prevention. This is also the original purpose of the announcement, to prevent overheated speculation in coins.
The same day the three ministries issued the announcement, the Inner Mongolia Autonomous Region Development and Reform Commission issued a “Notice on the establishment of virtual currency “mining” enterprise reporting platform”, a comprehensive cleanup and shutdown of virtual currency “mining” projects, give full play to the role of public supervision and protection, comprehensive acceptance of virtual currency “mining” enterprise issues letter and visit reports.
The reason why Inner Mongolia is an important energy power base in China, Inner Mongolia’s power plants are mainly coal-based, many are built near coal mines, the cost of power generation is low, so the low price of electricity attracts a large number of ‘miners’ in this mining. The reason why Inner Mongolia became the first place to ban bitcoin “mining” is related to the deployment requirements of the “Inner Mongolia Autonomous Region on ensuring the completion of the “14th Five-Year Plan” energy consumption double control target measures”, Inner Mongolia needs to achieve the double control target of energy consumption and promote Low carbon development.
On May 21, the State Council’s Financial Stability Development Committee held its 51st meeting and continued to emphasize the prevention and control of financial risks, “cracking down on bitcoin mining and trading, and resolutely preventing the transmission of individual risks to the social sector”. This is the first time that the State Council level has made clear requirements for a crackdown on bitcoin mining and trading. If the announcement by the three associations was meant as a call to action, this meeting of the Finance Committee released a strong signal to strengthen regulation and resolutely prevent the spread of risk.
On May 25, in order to further clean up the virtual currency “mining” behavior and strengthen the crackdown and disciplinary efforts, Inner Mongolia followed with the release of “eight measures to resolutely combat and discipline the virtual currency “mining” behavior (draft for comment)”.
On May 26, the National Development and Reform Commission issued the “Implementation Plan for the Arithmetic Hub of the National Integrated Big Data Center Collaborative Innovation System”, which stated that the national arithmetic hub nodes should be laid out, the “East Digital West Arithmetic” project should be implemented to support large-scale arithmetic scheduling, and a new data-flow oriented arithmetic network pattern should be built. The proposal of the “East Digital West Computing” project is very strategic, leading and innovative, which is of great significance to accelerate the construction of digital infrastructure, implement the requirements of carbon neutral carbon peak, and coordinate the coordinated development of the east and west.
On May 27, the Sichuan Regulatory Office of the National Energy Administration issued a notice on the convening of a research forum on virtual currency “mining”. The notice said, according to the National Energy Administration requirements, in order to fully understand the situation of virtual currency “mining” in Sichuan, will be organized on June 2 to convene a research forum.
In this round of policy can be seen, mining was stopped, in addition to the virtual currency itself is not recognized by the current law, but also because of its huge energy consumption characteristics and carbon neutral policy, so the mining industry is imperative to rectify. While the country is strongly regulating the mining behavior, it is also actively promoting the construction of digital infrastructure, and the “East Digital West Calculation” project plays an important supporting role in achieving green development and coordinated development of the digital economy in the east and west. The implementation of this project will enable data centers nationwide to form a new pattern of infrastructure integration with reasonable layout and green intensification.
Why is the country taking a heavy-handed approach?
From the perspective of environmental protection, our government proposed at the 75th United Nations General Assembly that “China will increase its independent national contribution, adopt stronger policies and measures, strive to peak CO2 emissions by 2030, and work towards achieving carbon neutrality by 2060.” Under the common initiative of global environmental protection, this is a major strategic decision based on the responsibility to promote the building of a community of human destiny and the inherent requirement to achieve sustainable development.
Obviously, in the context of carbon neutrality greatly, an industry as energy-consuming as cryptocurrency mining becomes an obstacle to achieving this goal. According to the Centre for Alternative Finance at the University of Cambridge, the annual electricity consumption of global bitcoin “mining” as of May 19, 2021 is approximately 133.68 TWh. What is this figure? The entire country of Sweden will only consume 131.8 TWh of electricity in 2020.
Source: FINANCIAL TIMES
Mining not only consumes a lot of electricity, but also increases carbon dioxide emissions if thermal power is used to mine bitcoin. Domestic virtual currency mining sites are mainly located in Inner Mongolia, Xinjiang and western Sichuan, with Inner Mongolia and Xinjiang using more thermal power generation and Sichuan using mostly hydropower. Thermal power generation converts heat energy into electricity by burning coal or other fossil energy, which will emit carbon dioxide in the process of burning coal and thus cause environmental problems, which is not conducive to the sustainable development of the blockchain industry in the long run, and certainly drags the leg of carbon neutrality.
In addition, the current uneven distribution of energy in the east and west of China, densely populated and economically developed areas (such as Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macao Bay Area, Chengdu-Chongqing) energy tension, the western region, economically underdeveloped areas are energy-rich, Inner Mongolia has the heavy responsibility of power transmission to Beijing-Tianjin-Hebei and other areas of the power grid, is an important area for the transmission of electricity from the west to the east. Moreover, the current rapid development of 5G, industrial IoT and smart cities will also generate sizeable demand for energy consumption. If bitcoin ‘mining’ is allowed to proliferate in Inner Mongolia, it will to some extent affect the Inner Mongolia power balance and the west-east power transmission strategy.
For the main use of hydropower in Sichuan, Sichuan’s energy structure itself is dominated by hydropower, and Sichuan’s treacherous terrain, the river drop, the nearby small hydropower station’s power generation can not go online to send out, coupled with the abundance of water during the water period, so Sichuan’s larger energy abandonment phenomenon is the actual problem. Therefore waste energy utilization, mining with hydropower method also does not pollute the environment, which is helpful to consume the excess electricity during the abundant water period. Although mining is good during the high water period, there is not as much power during the flat and dry water periods, so how to solve this problem will probably be discussed at the June 2 symposium as well.
In addition to the environmental perspective, the crazy trend of cryptocurrencies in recent months has made the market a bit overheated, and the bubble is very big. Influenced by the market hype, a large number of ordinary investors are involved in investing in the cryptocurrency market, which is mostly considered a speculative behavior. The large amount of money invested in bitcoin trading will weaken the support for the real economy and make the possibility of financial risks spreading. More importantly, bitcoin is a specific virtual commodity, not backed by real value, and does not have the same legal status as money, so bitcoin investment transactions are not protected either. Increased regulation at this time is exactly what is needed to cool down the overheated market.
What are the implications for the cryptocurrency industry?
After the FSC meeting, the cryptocurrency market bubble suffered a major blow. Bitcoin prices have been sliding, hitting a low of $31,815.67 on May 23. As of 2:45 p.m. BST on June 8, the bitcoin price rebounded to $35,544.78, down 0.97% in the past 24 hours. Also on May 23, other cryptocurrencies crashed en masse. Ether slipped from above $2,400 to a low of $1,739.03. XRP Ripple fell about 12.94%, and Dogcoin dropped more than 10%.
This round of policies has had a huge impact on cryptocurrency prices, in addition to mining-related businesses. Relatively speaking, this series of policies has a greater impact on head and large mining farms and pools. Many head mining farms have stepped up their overseas mining layout, with Central Asia and North America being the main layout directions, while certain small mining farms or individual miners have not been affected much.
In addition to the withdrawal and closure of mining farms, a number of mining service platforms have announced the blocking of IPs within mainland China. on May 23, Firecoin, which owns mining pools, suspended the provision of mining machines and derivative services for users within mainland China, and users who have purchased BTC mining products suspended the provision of mining machine hosting services. on May 26, the cloud mining platform Bit Xiao Deer blocked all IPs in mainland China, and stated that it would ensure that the platform would not provide services to Mainland China residents. The physical mining platform Mars Cloud Mining also announced that Mars Cloud Mining will block access to IPs within mainland China from 20:00 GMT on May 26.
Global Attitudes Towards Cryptocurrencies
Not only China, but also countries around the world have been strengthening the regulation of cryptocurrency market recently.
On May 19, Sherrod Brown, chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs, issued an open letter proposing that the Office of the Comptroller of the Currency (OCC) stop issuing bank trust licenses for cryptocurrency institutions and reexamine several licenses already issued by the previous administration. on May 20, the Office of the Comptroller of the Currency (OCC), the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) are considering the creation of an “interdepartmental sprint group” to regulate virtual currencies.
On May 1, a presidential decree was published in the Official Gazette, adding cryptocurrency asset companies to the list of institutions subject to money laundering and terrorist financing regulations. On May 7, Turkish Finance Minister Lütfi Elvan announced that the country’s cryptocurrency exchanges must report any transactions over 10,000 Turkish lira (approximately $1,200) to the Financial Crimes Investigation Board (MASAK). MASAK will be given the power to audit and monitor cryptocurrency exchanges.
On May 7, Iran’s central bank banned trading in cryptocurrencies mined abroad. Local media said the move was made to prevent domestic capital flight, which could be due to the devaluation of the country’s fiat rial (Rial).
Most countries are tightening regulations on the cryptocurrency industry, but some are encouraging. India, for example, does not ban cryptocurrency trading, the RBI said on May 31, “Investing in cryptocurrencies has always been 100% legal in India and the new announcement by the RBI clearly confirms the right to trade with cryptocurrency companies.” Avinash Shekhar, co-CEO of ZebPay, India’s oldest cryptocurrency exchange, said the RBI’s statement will attract more Indian investors to buy virtual currencies.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/cryptocurrency-circle-under-heavy-regulation/
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