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China: Banned cryptocurrencies, what are the impacts on the global economy?

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Is China declaring war on foreign cryptocurrencies by banning them from its territory? The country now seems ready to prevent its inhabitants from buying, exchanging or mining Bitcoins, by making platforms dedicated to price tracking unavailable. It goes even further, declaring these cryptocurrencies illegal. Through this announcement, China intends to offer its own virtual currency, the E-Yuan. Approach to protect the environment, as announced by Beijing? Or simply the desire to counter foreign systems? And above all, what impacts are announced for the global market?

Cryptocurrencies in China, the end of a period of economic growth

This is not the first time that China has banned the use or manipulation of cryptocurrencies on its soil. Indeed, this is the 11th time in 8 years that the country has banned their use, considering that it “violates public order and good customs”. The Central Bank of China considers the exchange of cryptocurrencies as an illegal activity, just like mining.

In June 2021, China had already started a first offensive against Bitcoin and mining in the country. To do this, he had started by completely stopping the mining activity of 26 companies located in the Sichuan region, one of the most active in the creation of cryptocurrencies. The region alone provided more than 90% of Bitcoin mining capacity throughout the country. Beyond banning the activity of these companies, China has also decided to completely interrupt their energy supply in 48 hours.

Why does China decide to completely ban the use of Bitcoin on its soil, just like other identical cryptocurrencies? At first glance, the country announces that this activity does not meet its ecological commitments. Indeed, it seems that its goal is to achieve carbon neutrality by 2060. Mining, however, compromises this objective, requiring a lot of energy expenditure. To mine Bitcoin, it is not individuals who do it from home… But many huge industrial sites, which run computers constantly. An activity that therefore requires a lot of electricity.

Another potential explanation for this total and sudden blocking of Bitcoin is also the upcoming arrival of E-Yuan on the Chinese market. A cryptocurrency similar in every way with Bitcoin… But reserved for the local market. Another sign that China is closing in on its own market?

Bitcoin currency coin china
China renounces cryptocurrencies on its territory, including Bitcoin.

The impact on the global market feared by experts

Since China’s announcement, the Bitcoin market has seen a significant drop in value: -9% in just a few hours. Indeed, after the announcement of the suspension of Bitcoin on its territory, the value of the first cryptocurrency increased from $ 45,000 to $ 41,000. This is not the first significant decline experienced by Bitcoin since the beginning of the year. Between the beginning of 2021 and April, the value of Bitcoin had increased by 800%, reaching a peak at $64,870. But after the announcement of the closure of Sichuan businesses, its value had suddenly fallen by 50%.

Since the launch of Bitcoin, 80% of the world’s cryptocurrency exchanges have come from computers based in China. This makes it the 2nd producing country of this virtual currency behind the United States. In the first half of 2021, cryptocurrencies had given the Chinese more than $150 million from mining. A large sum that shows the country’s involvement… At least “showed”.

What will become of the price of Bitcoin, now that China is retracting and closing itself to this currency? Experts are mixed. Some believe that investing with a short-term ambition would be more than risky, given the loss of value of Bitcoin announced. In particular, they advise diversifying their portfolio rather than betting everything on a currency and seeing the long term. Others, on the contrary, believe that this announcement will be better for less locked territories.

In general, China’s withdrawal will undoubtedly disrupt the normal economic and financial order. On the territory, this ban on foreign cryptocurrency also tends to favor illegal cross-border transfers of assets. China carried out up to 75% of mining operations in 2021. This is therefore likely to disrupt the world market somewhat.

Sources:

China declares cryptocurrencies illegal. Veracash press release published on September 24, 2021

Crackdown in China: Access to CoinMarketCap, CoinGecko and TradingView has been cut off

China bans cryptocurrencies for the eleventh time – is it really different from other times?

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