China Cryptocurrency Ban: What It Means for Bitcoin, Coinbase, and the United States

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Bitcoin’s mining epicenter has stopped it. On September 24, the Central Bank of China declared all crypto-related transitions illegal, citing concerns about gambling fraud and money laundering. The move triggered a sharp drop in the markets; some investors rushed to empty their holdings and the price of Bitcoin fell nearly 10% after the announcement, before quickly regaining lost ground.

The crackdown on crypto in China comes as governments around the world – including the United States – begin to merge their official positions on digital assets and virtual currencies. The Chinese government has long had doubts about cryptocurrency, so the decision to ban it outright is not entirely surprising. Below, we break down the implications of China’s announcement, its impact on trade in the United States and elsewhere – and what it could mean for digital currencies in 2022 and beyond.

What was China’s official position before the ban?

China has long been crypto-skeptical. In 2013, the nation banned Chinese banks from handling Bitcoin. In 2017, China banned initial coin offerings – the crypto version of an initial public offering – in which a cryptocurrency startup sells coins or tokens to raise funds for the business. The People’s Bank of China, which is the country’s central bank, called them an illegal form of fundraising.

Read more: Initial coin offerings, explained

More recently, China has taken on crypto-mining operations within its borders. In 2019, the Chinese state planner expressed interest in banning Bitcoin mining. And earlier this year, the Chinese government banned crypto mining in various provinces, including the Bitcoin mining epicenter of Sichuan. It’s still unclear how the ban will affect CNY, China’s own state-backed digital currency.

How central is China to cryptocurrency mining?

So far, most of the world’s crypto mining has taken place in China, with the United States occupying a distant second place. As of April 2021, 47% of all crypto-extractions took place in China, according to the University of Cambridge. In contrast, the United States accounted for 16.8% of the world’s crypto mining in the same month.

In the short term, that will likely change. Even before the official announcement, some sort of crypto-mining migration was already underway. And within days of the announcement, authorities in China’s Inner Mongolia Province seized more than 10,000 computers specially customized for crypto mining, as Coindesk reported.

Will the Chinese ban have an impact on the price of Bitcoin?

Following China’s official announcement banning digital currency, “China FUD” began popping up on Twitter. Many users were quick to point out that previous Chinese crypto statements produced “fear, uncertainty and doubt” – but were followed by short-lived slowdowns and shouldn’t be taken too seriously. Indeed, the following Monday, the price of Bitcoin was roughly the same as before the announcement.

Read more: Here’s how much electricity it takes to mine Bitcoin and why people are worried

What is the impact of the ban on cryptocurrency exchanges?

China’s ban extends to crypto exchanges that do business with Chinese citizens, even if they are located outside of China. Crypto exchanges are now struggling to find a way to deal with Chinese customers. Coinbase, which is one of the largest cryptocurrency exchanges in the United States, has not publicly commented on the ban. But investors avoided its first bond sale following the announcement, according to Bloomberg.

How did the US government react?

While the U.S. government has yet to take an official position on Chinese law, a handful of lawmakers were quick to take action following the ban:

China’s authoritarian crackdown on crypto, including #Bitcoin, is a great opportunity for the United States. It is also a reminder of our huge structural advantage over China.

Senator Pat Toomey (@SenToomey) September 24, 2021

China banning Bitcoin is a massive mistake with impacts that will be felt for generations. Their loss is our gain and America can and will lead the future by providing a clean source of energy for Bitcoin miners and everyone who builds on / with / for #Bitcoin. https://t.co/W4Gcq2e92w

Mayor Francis Suarez (@FrancisSuarez) September 24, 2021

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