Why the Financial Committee took a stand to “crack down on bitcoin mining and trading”: prevent hot money + clean up norms + carbon neutral

Why is the Financial Commission introducing policies to crack down on bitcoin mining and trading at this time? An industry insider who has been involved in the development of digital currency believes that there are multiple possible reasons for cracking down on bitcoin mining and trading, including preventing “hot money” funds from entering or leaving the country illegally using bitcoin, cleaning up the concept and scope of digital currency, and the carbon neutral trend of bitcoin mining being too power hungry.

Why the Financial Committee took a stand to "crack down on bitcoin mining and trading": prevent hot money + clean up norms + carbon neutral

 On May 21, the State Council’s Financial Stability Development Committee (FSDC) held its 51st meeting, which mentioned “strengthening the supervision of financial activities of platform companies, cracking down on bitcoin mining and trading, and resolutely preventing the transmission of individual risks to the social sector.

  As about 75% of bitcoin “mining” is done in Sichuan and Xinjiang, the tightening of regulations from the Finance Committee caused bitcoin to tremble again, as the news was released in less than 10 minutes, and bitcoin prices fell by more than $2,000, falling off the $40,000 mark that it had so easily recovered.

  As of 23:49 GMT on May 21, the price of bitcoin was $37,258, a 24-hour price change from a 2.39% rise this morning to a 8.05% drop. Price fluctuations are bound to once again touch the fragile and sensitive nerves of bitcoin investors, with blowouts as a direct phenomenon. As of 23:27 GMT on May 21, bitcoin exploded $974 million in 24 hours and $219 million in one hour.

  Why did the FSC introduce policies to crack down on bitcoin mining and trading practices at this time? A former digital currency research and development industry insider believes that there are multiple possible reasons for cracking down on bitcoin mining and trading, including preventing “hot money” funds from using bitcoin to enter and exit the country illegally, cleaning up the concept and scope of digital currency, and the carbon neutral trend of bitcoin mining being too power hungry.

  Preventing “hot money” from using bitcoin

  The above-mentioned industry insiders believe that the Financial Committee decision-making ideas should be seen in context together. The Financial Committee today also proposed “to further promote the market reform of interest rates and exchange rates, to maintain the basic stability of the RMB exchange rate at a reasonable balance level.” He said that if the RMB exchange rate changes in the future, in the case of China’s capital account is not fully open, to prevent “hot money” funds with cryptocurrencies such as bitcoin in and out of the territory.

  According to the WeChat public number “Moganshan Research Institute,” Zhou Chengjun, director of the Institute of Finance of the People’s Bank of China, said at the Moganshan conference recently that in general, the yuan will continue to appreciate against the dollar in the medium to long term. This is both a result of China’s continued economic growth and the increasing relative purchasing power of the RMB, as well as one of the consequences of the Federal Reserve engaging in quantitative easing and constant meter expansion, and empirical data also shows that most countries that successfully move past the middle-income trap will see their currencies trend toward continued appreciation against the dollar after their per capita income exceeds $10,000.

  In fact, cases of cross-border money laundering using bitcoin are not uncommon. In March this year, the Supreme Prosecutor’s Central Bank issued a typical case of punishing money laundering, and the Shanghai Pudong New Area People’s Procuratorate concluded after review that Chen Moubo opened a digital currency trading platform to issue virtual coins and lured customers to top up and trade on the platform, falsifying the platform’s transaction data to conceal the funding gap and delaying or even refusing investors’ withdrawals. Chen Mouzhi helped Chen Moubo to transfer the fund-raising fraud money abroad by bank transfer and exchange of bitcoins. The Supreme Prosecutor pointed out that the use of cross-border exchange of virtual currency, the proceeds of crime and income into foreign legal tender or property, is a new means of money laundering crime in recent years.

  In addition, there is no authoritative definition of “digital currency” in mainland China, and the public and media are at a loss as to what it means. With the gradual promotion of the central bank’s digital currency, regulation may need to clarify the definition and scope of digital currency.

  As early as December 2013, the People’s Bank of China and five other ministries issued a notice on preventing the risks of bitcoin, making it clear that bitcoin is not issued by the monetary authority, does not have the properties of money such as legal compensation and compulsory, and is not a real sense of money. By nature, bitcoin is a specific virtual commodity that does not have the same legal status as money and cannot and should not be used as money in circulation in the market.

  At the same time, the development and testing of China’s central bank digital currency (DC/EP) is still ongoing. at the end of 2019, the digital RMB was successively launched in Shenzhen, Suzhou, Xiongan New Area, Chengdu and Beijing Winter Olympics scenarios for pilot testing, and by October 2020 six more pilot testing areas were added in Shanghai, Hainan, Changsha, Xi’an, Qingdao and Dalian. At present, the application scenario of digital RMB is expanding, gradually covering a number of fields such as daily bill payment, catering services, transportation, shopping and consumption, government services, etc.

  ”Mining” power consumption is banned

  From a more macroscopic perspective, bitcoin’s acquisition method – “mining” – is extremely power-consuming and has been criticized by public opinion.

  The most important cost of producing virtual currency, called “mining,” is the cost of electricity to run the “mining machines,” so “mining” farms are clustered in areas where electricity is plentiful and cheap. For example, thermal power is abundant in Xinjiang and Inner Mongolia, and hydropower is abundant in Yunnan, Sichuan and Guizhou. But thermal power consumes a lot of energy, which is contrary to recent national policies such as carbon peaking and carbon neutrality.

  Previously, the University of Cambridge’s Centre for Alternative Finance published data saying that Bitcoin’s total energy consumption is between 40-445 megawatt hours (TWh), with an average statistic of about 130 TWh. Bitcoin mining consumes about the same amount of electricity as the entire country of the Netherlands in a year. In reality, however, the real power consumption figures for bitcoin may actually be much higher. Because as the price of bitcoin has skyrocketed, new miners are “making money” by using older “miners” to mine.

  The big consensus in the bitcoin mining industry is that “at least 60% of the network’s computing power is in China”. For China, the situation is perhaps even more critical. According to the aforementioned study, about 65% of cryptocurrency mining is done in China, and coal accounts for about 60% of the country’s energy mix. About 75 percent of miners use some kind of renewable energy, but renewable energy still accounts for less than 40 percent of total energy consumption.

  Since this year, some areas of China have been warning of power supply shortages one after another. According to media reports, Zhejiang Province issued a notice in April that the province’s electricity balance is expected to tighten across the board in 2021, with hard gaps in summer and winter peaks. Since this year, by the economic rebound and La Niña phenomenon, Guangdong’s electricity load to maintain high growth, April, the province’s maximum load is expected to reach 110 million kilowatts, 2 million kilowatts higher than predicted at the beginning of the year, there will be a certain power gap in the local peak hours.

  In recent years, some domestic areas are also strictly forbidden to “mining”. May 18, Inner Mongolia Development and Reform Commission issued a notice that in order to further broaden the virtual currency “mining” enterprise problem source channels, give full play to the role of public supervision and protection, especially the establishment of virtual currency “mining” enterprise sources. The “mining” enterprise reporting platform. The main scope of the report has four items: virtual currency “mining” enterprises; virtual currency “mining” enterprises disguised as data centers to enjoy tax, land, electricity prices and other aspects of preferential policies; virtual currency “mining” enterprises engaged in virtual currency “mining Enterprises that provide services such as venue leasing for virtual currency “mining” enterprises; enterprises that obtain electricity supply through illegal means and engage in virtual currency “mining” businesses.

  On May 18, the China Internet Finance Association, China Banking Association and China Payment Clearing Association jointly issued the “Announcement on Preventing the Risk of Speculation in Virtual Currency Trading”, which requires that relevant institutions shall not carry out business related to virtual currency. Financial institutions, payment institutions and other members should effectively enhance their social responsibility, and should not use virtual currencies to price products and services, underwrite insurance business related to virtual currencies or include virtual currencies in the scope of insurance liabilities, or provide other services related to virtual currencies directly or indirectly for customers.

  The three associations pointed out that the above prohibited acts include but are not limited to: providing customers with virtual currency registration, trading, clearing and settlement services; accepting virtual currency or using virtual currency as a payment and settlement tool; carrying out exchange services between virtual currency and RMB and foreign currencies; carrying out storage, custody and mortgage business of virtual currency; issuing financial products related to virtual currency; and using virtual currency as the investment underlying of trusts, funds and other investments.

  The announcement reminds consumers to raise their awareness of risk prevention and beware of loss of property and rights. Consumers should enhance risk awareness, establish the correct investment concept, do not participate in virtual currency trading speculation activities, beware of damage to personal property and rights and interests. To cherish their personal bank accounts, not to be used for virtual currency account top-up and withdrawal, purchase and sale of relevant transaction recharge codes and transfer of relevant transaction funds and other activities, to prevent illegal use and leakage of personal information.

  With the three associations united, bitcoin, which was already on a downward trend, plummeted to a low of $30,000 support point, with a maximum intra-day drop of 31.22%. However, at around 22:00 on the evening of May 19, bitcoin stabilized and rebounded, remaining at a relatively high $40,000 level until this FSC voice.

  But bitcoin’s not-so-common volatility is still keeping the eyes of central banks and regulators wide open.

  In its annual financial risk assessment on May 20, local time, the Bank of Canada said that the volatility of cryptocurrency assets is a new vulnerability facing the country’s financial system. Policymakers led by Governor McCollum said that while the crypto market is not yet systemically important as an asset class or payment method, that could change if a large tech company with a large user base decides to issue a cryptocurrency that is widely accepted as a means of payment. Norway’s central bank also warned that if banks continue to increase their investments in cryptocurrencies, the latter’s sharp price fluctuations could cause problems for the banking system. On May 20, local time, the Biden administration also proposed a new proposal that would require cryptocurrency transfers over $10,000 to be reported to U.S. tax authorities, and the price of bitcoin subsequently fell about 5% in response.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-the-financial-committee-took-a-stand-to-crack-down-on-bitcoin-mining-and-trading-prevent-hot-money-clean-up-norms-carbon-neutral/
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