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Opportunity Knocks! Chinese Clampdown Extends to Mining, but Look on the Bright Side!

25.05.2021

One thing is for sure. Cryptocurrency traders are a very different set of people to those who are used to trading traditional assets or investing in old fashioned, long term products such as pension funds or savings plans.

The current wave of incredibly high prices that Bitcoin and a handful of other very popular cryptocurrency assets has been riding is absolute testimony to that.

Over the years, there have been endless complaints to regulatory authorities and crackdowns by governments on what now pale into absolute insignificance compared to the news and sentiment orientated factors that have caused cryptocurrency assets to vary hugely in price recently.

Twenty years ago it was payment protection insurance, then it was the sub-prime mortgage market in the United States and the massive government reaction and imposition of new rules to ‘reform Wall Street’ in its aftermath, and a massive curtailment of credit to private borrowers and commercial borrowers alike.

Yet cryptocurrency falls by more than the GDP of many developed Western nations in just one day because of something that was broadcast on the news, and people not only accept it but double down on their interest in investing in cryptocurrency.

This is an unprecedented reaction, and has demonstrated that there is a continually increasing number of people globally who are interested in the future of cryptocurrency and are looking at it through a completely different lens to any other investible asset.

Today, another opportunity has appeared, and once again, it has been created by the all-quashing stance of the Chinese government which not only has banned the use of a number of cryptocurrencies as payment methods within its borders, but is now looking to restrict the mining of cryptocurrencies inside China.

How can this be stopped, you may ask, and that would certainly be a valid point considering that over the past 10 years some of the largest mining rigs and most effective Bitcoin mining pools and communities have been Chinese.

Not only have they been allowed by the Communist government to develop huge server farms for the purposes of mining Bitcoin and in particular out-mining their Western counterparts, but they have had a significant advantage in that many miners have taken advantage of free electricity which comes with the job for many government sector workers in China, removing the massive burden that the high electricity consumption causes when mining Bitcoin and leading to huge profits.

This slipped through the net despite the Chinese internet network which is the most sophisticated in the world and is heavily monitored for all activity, largely because mining Bitcoin is not internet-dependent, it is machine-dependent.

It was inevitable that a crackdown would occur, however this once again presents a massive opportunity, as it will, if effectively implemented, stop all mining within mainland China, causing the potential mining opportunity within Western markets to increase as there are only a finite number of most cryptocurrencies which are able to be mined, thus reducing the value further, whilst at the same time removing the Chinese mainland from the cryptocurrency market which would represent a considerable part of the demand.

If this spurs people in other nations to begin mining, it could shift the empowerment toward those who are in free market economies and are able to trade cryptocurrency on exchanges such as CoinMetro, as well as to see a dip which would effectively entice those waiting for further dips to buy in.

Vice Premier Liu He is in charge of the proposed curtailment of mining in China, and he is a very senior government official indeed.

Given that cryptocurrency has proven itself to be driven by sentiment and community discussion over recent weeks, surely another utterance from a senior official who aims to ban it in China would be enough to make those looking to get in on the action sit up and listen.

The interesting aspect here is that whilst China attempts to ban all activity related to cryptocurrency whether its trading, spending or mining, the Chinese government has been expanding the remit on developing its own Central Bank-backed digital Yuan, which will be of absolutely no earthly interest to anyone whatsoever.

The Chinese government’s official line is that it does not like the highly volatile, speculative nature of the cryptocurrency market, however this very clever propaganda was put out by Fan Long, co-founder of Conflux, a Chinese government-backed blockchain network which operates inside China.

This is likely to be because China is clearly interested in the blockchain technology that underpins Bitcoin, but wishes to use it for its own government-controlled purposes rather than allow it to be used as a distributed ledger system in the hands of the people, which would undermine the controlled nature of every market in China by the state.

Additionally, the government has stated that it wants to shut down cryptocurrency mining activities because they consume huge amounts of electricity, often from coal-fired power plants, whilst the country has promised to reduce its carbon emissions.

That is another canned response from the government which is a master at putting out sanitised reasons for banning free-market activity or the ability to convert Yuan into a borderless currency that has massive value globally. 

As the weekend concluded, Huobi, one of China’s main cryptocurrency exchanges officially confirmed that it would stop selling mining machines and that it has suspended futures contracts, exchange-traded products and leveraged products to new users in China and certain other regions.

Thus, we are now in a position where we can see that there are increased mining opportunities, and the inability of Chinese citizens who are a massive contributor to the demand for cryptocurrency to be able to store, trade or mine them as well as the possibility of Chinese citizens seeking to trade and invest using international cryptocurrency exchanges such as CoinMetro.

As is and always will be the case with a distributed, totally borderless peer-to-peer currency that is in such high demand, those banned will likely seek out international alternatives.

And for this reason, it can never be stopped, it can simply be a vehicle for the creation of opportunities.