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Cryptocurrency prices have fluctuated wildly in recent weeks as China intensifies crackdown on trade and mining operations.
On Monday, bitcoin collapsed by more than 10% after Beijing unplugged huge mines in Sichuan province.
China’s regulatory assault on digital currency has prompted crypto watchers to seek answers as to why Beijing is cracking down now and what it means for the market.
– Why the crackdown on crypto? –
Beijing craves control, with the financial system increasingly in its sights.
Bitcoin, the world’s largest digital currency, and other cryptos cannot be traced by a country’s central bank, making them difficult to regulate.
Chinese authorities banned the trade this month to “prevent and control financial risks.”
Analysts say China fears the proliferation of illicit investment and fundraising – it also has strict rules on capital outflows.
Crypto transactions threaten these controls.
“China does not have an open capital account and cryptocurrencies bypass this, which is anathema to the Chinese authorities,” Jeffrey Halley, Asia-Pacific analyst at the trading firm, told AFP. Oanda currencies.
But the crackdown on crypto also opens the doors for China to introduce its own digital currency, already in the works, allowing the central government to monitor transactions.
While the creation and trading of crypto has been illegal in China since 2019, Beijing’s latest moves have led its vast network of bitcoin miners to go out of business.
– What makes China important? –
China’s power-hungry Bitcoin data centers power nearly 80% of the global cryptocurrency trade.
Access to cheap power and hardware has allowed Chinese companies to process the vast majority of crypto transactions and generate the tedious hexadecimal numbers needed to mint new currencies.
China is relying on a particularly polluting type of coal, lignite, to power part of its mining operation and Bloomberg predicts that it will not be able to meet the needs of its cryptocurrency industry with energy. renewable before 2060.
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According to the University of Cambridge Bitcoin Electricity Consumption Index, crypto-mining is expected to use 0.6% of the world’s total electricity production in 2021, more than Norway’s annual consumption.
China’s restrictions may be in part triggered by the fact that the crypto’s huge electricity demands have led to an increase in illicit coal mining, posing a serious risk to Beijing’s ambitious climate goals.
Several provinces have ordered mines to close as the central government plays with the shadow sector.
Authorities in Sichuan province ordered the closure of 26 mines last week and asked power companies not to provide electricity to energy-hungry facilities.
The hit on one of the largest mining provinces brought the price of bitcoin down to $ 32,309.
– What are China’s digital currency plans? –
China launched tests for a digital yuan in March. Its objective is to allow Beijing to carry out transactions in its own currency across the world, reducing dependence on the dollar which remains dominant internationally.
“It’s about making the yuan more internationally accessible while retaining full control,” said analyst Halley.
But as countries rush to secure their own digital currencies in a leading position in the market, experts say state-sanctioned digital money will not dampen crypto’s wider appeal as a safe place away from the reach of governments.
“Bitcoin competes only marginally as a payment system,” said Leonhard Weese, co-founder of the Bitcoin Association of Hong Kong.
“At the moment, its main attraction is that it cannot be easily grabbed, censored and debased.”
ssy / apj / oho
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