Why Is China Cracking Down on Cryptocurrencies?

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In July 2021, China stepped up efforts to rein in the country’s cryptocurrency industry, banning crypto mining operations and ordering major banks not to do business with crypto companies.

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On July 27th, the Chinese government canceled the registration of company business with the help of legal authorities. Alongside that, they warned all financial organizations to avoid providing virtual currency-related services both directly and indirectly. The government issued a warning after three Chinese, state-backed financial associations raised concerns about risks; they stated that risks appear from the volatility of cryptocurrencies. 

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Bitcoin is not backed by precious metals or government loans and its price simply reflects assumptions about its future value. As a growing currency, it is no doubt a risky investment with a varying volatile value. 

If we consider its past, over ten years ago, Bitcoin suffered four individual losses of almost 50% price drop, which would be rare in other altcoins. While there may be many factors behind the crackdown in China, authorities have made it clear on several occasions that: fluctuations in bitcoin prices pose a threat to the country’s economic and financial stability.

The government said that cryptocurrencies disrupt economic order and that it will “resolutely prevent the transmission of individual risks to the wider society,” declared the State Council’s Financial Stability and Development Committee in a gathering chaired by Vice Premier Liu He, President Xi Jinping’s top representative on economic and financial matters.

We all know that China never compromises over the economic losses in the country. “The Chinese state in my reading has a fine-grained control over fluctuations in markets for important goods and assets,” pointed out Isabella Weber, an assistant professor of economics at the University of Massachusetts Amherst. “Currently, there is growing concern around financial stability in China. In this context, the crackdown on cryptocurrency is an attempt to contain a potential source of instability,” she added.

The Chinese government have directed their segments including banks and online payment firms not to provide any cryptocurrency-related services within the country. 

China's Central Bank Urges Financial Institutions To Crack Down On Cryptos

But the catch is that China has only banned crypto exchanges with initial coin offerings. However, China has not barred individuals from holding cryptocurrencies including Bitcoin and other altcoins. 

They acted offensively, even though Bitcoin’s major tradings occur in China; data by University of Cambridge in April 2020 reveals that around 65% of bitcoin miners reside in China. The huge Chinese population contains many powerful mining hubs that embrace Bitcoin (BTC), the world first, largest, and most competitive cryptocurrency which can easily solve complex computational puzzles easily. 

In short, the miners who reside in China helped Bitcoin raise its value from 1,000% to nearly 65,000 USD within a year, and it’s a shame that the Chinese miners who helped to raise the value of BTC, won’t be progressing any further with it. 

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After the Chinese miners began to shut down their cryptosystems, the value plummeted, closing out the first half of the year down almost 50%.

However, in China’s case, the problem goes beyond the framework of a simple economy, because the political legitimacy of the government depends to a large extent on the success of the economic growth of the countries, said Zennon Kapron, founder of Kapronasia, Fintech research and consulting.

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