The Geo-Economical Impact Of China's Crackdown On Crypto Mining

Twitter icon  •  Published 10 months ago  •  Shankar Iyer

Since the start of 2021, the price of Bitcoin is up 31% and at the time of writing this article it was trading just above USD 38,000. This 31% uptick accounts for the nosedive from BTC’s all-time high price of USD 64,863.10 in mid-April.

At one point in time, cryptocurrencies were viewed as a potential threat to the existing monetary system. Federal governments feared the emergence of a parallel economy operating on the sidelines, which would, in turn, impact domestic and international policy decisions. But now looking at the actions taken by the Chinese regulators, it is evident that such decisions will have a cascading effect on other countries in the region.

Interpreting the crypto mining crackdown in China

A lion’s share of crypto mining operations takes place in China, and certain reports suggest that the Asian giant's control rose up to 70% of the global hash rates in the past. It was no surprise that Bitcoin’s price fell drastically in May 2021 with the crackdown of miners and crypto trading activities in China.

A key area of concern for many was that the Chinese Communist Party (CCP) could end up having an overarching control on the Bitcoin Network, as per sources cited in a report by Chainalysis published in August 2021. The report also claims that the weekly supply of newly minted bitcoins in liquidity mining pools has halved since the crackdown announcement was made public.

crypto mining, China crackdown, Russia, Iran,

A certain degree of influence on the Bitcoin network is bound to have a direct impact on the success of China’s Digital Yuan plans. Other interpretations of China’s crackdown in the report hint at a possibility of evading U.S. sanctions or using the digital yuan as means for “financial surveillance” by the CCP. And since the price of BTC is quoted using the global reserve currency (USD), the impact may also be felt in the global economic engine.

Chinese regulators carried out similar crackdowns in 2019 against domestically operating cryptocurrency businesses. At the time, Ponzi-schemes like PlusToken, money laundering and drug trafficking activities were rampant.

Recently, CoinDesk reported that many Chinese crypto traders on OKEx and Huobi are migrating to Binance. Incidentally, Binance is also facing flak over potential money laundering activities in some countries. We believe that it won’t be long before more cryptocurrency service providers witness a shift in their userbase.

Geo-economic impact in Central Asia?

crypto mining, China crackdown, Russia, Iran,

(Image Source: www.worldatlas.com) 

Talking about possibly evading U.S. sanctions and trade restrictions, countries like Iran or Russia who are facing the brunt may also consider opening up to cryptocurrency mining operations. And some of the beneficiaries of such decisions could be their neighbouring countries.

Crypto mining in Kazakhstan

crypto mining, China crackdown, Russia, Iran,

The9 City — a bitcoin mining company headquartered in Shanghai and listed on NASDAQ, could migrate to Kazakhstan claims the Block Crypto. The company’s 100 MW mining facility is underway in the Central-Asian province.

Nasdaq listed Ebang International (headquarters in Hangzhou) and NYSE listed BIT Mining Ltd (headquarters in Shenzhen) are also moving operations to Kazakhstan.

It is interesting to note that Kazakhstan shares an immediate land border with Russia, and China and is in close proximity to Iran and connected through the Caspian Sea.

Cryptomining in the Central Asian province is legal and the Government of Kazakhstan will commence taxing Crypto miners from 2022, CoinTelegraph reported. The CoinTelegraph report also quoted sources that claimed the country’s contribution to the global bitcoin hash rate is behind only China, the USA and Russia.

Crypto mining in Iran

crypto mining, China crackdown, Russia, Iran,

The oil-rich country’s economy has suffered from U.S. sanctions for a prolonged period of time. So, it is understandable why mining cryptocurrencies would seem like a lucrative option for Iranian crypto enthusiasts. However, the country’s administration has opted to prohibit mining for the time being; due to its high energy requirements.

A news report published on Bitcoin.com claimed that Tavanir — the Iranian Power Generation, Distribution and Transmission company, has flagged a risk from the influx of Chinese crypto miners. The CEO of Tavanir is worried about the potential smuggling of mining equipment from China to Iran.

Iranian President Hassan Rouhani chose to ban crypto mining in May 2021 for a period of four months owing to blackouts in some of the cities. At the time, Reuters quoted Rouhani saying that up to 85% of mining activity in Iran was unlicensed.

Russia's stance on crypto mining

crypto mining, China crackdown, Russia, Iran,

The Russian Federation is poised to welcome crypto miners in its midst. RACIB or The Russian Association of Cryptoeconomics, Artificial Intelligence and Blockchain is an entity geared at mobilizing the crypto market players in the country.

Russia's low-cost supply of electricity along with its weather conditions (cold climates cut down the need for cooling systems) bode well for the crypto mining industry. It is already collaborating with authorities both on a federal as well as regional level along with state-owned enterprises. Reportedly, RACIB has garnered the interest of certain Chinese mining groups who control roughly one-fourth or 25% of the global bitcoin hash rate.

Russia already has energy cooperation agreements with Kazakhstan. It is still unclear if this cooperation could extend to powering crypto mining farms in Kazakhstan.

Georgia

Talks are currently underway between the Russian Federation and the Northwestern Georgia region for electricity supply. These negotiations include electricity supply for crypto-mining activities. The autonomous region of Georgia is also working to bridge the interactions between miners and utility companies that are operated by the state. One could expect liberal crypto mining laws in the region if the talks fall in place.

Conclusion

China's move is in stark contrast to the developments in the U.S. The United States is considering taxing crypto businesses and bringing them under the mainstream asset classes. This would not only set up a regulatory framework for the sector to grow but also act as a source of income for the government.

On the other hand, china's offensive against crypto miners is acting as a boon for some of the Central-Asian economies. Although this might improve the chances of a successful digital yuan launch, it also crushes any prospects of a decentralized cryptocurrency ecosystem. 

Author

Shankar Iyer

Shankar Iyer has a background in Investment Banking and Financial Services; from Lehman Brothers to Deutsche Bank, and a solid understanding of the financial markets and its problems. Today, he’s an avid researcher and writer on a wide variety of blockchain topics.

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