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Instead of declaring war on cryptocurrency and further weakening the US economy, Chinese authorities appear to be putting things in order.
The ongoing trade war between the United States and China is in its fourth year. Former U.S. President Donald Trump saw different results than he expected: America has taken a hit as a result of higher tariffs and sanctions against Chinese companies, and has not benefited nearly as much as he expected.
It has cost the country up to 245,000 jobs. The U.S. Chamber of Commerce calculated that the situation puts the exports of each state at risk. For example, the damage to Florida’s exports alone has already reached $1.9 billion.
At the same time, China was taking a more strategic approach: not only did it impose reciprocal sanctions and export its products through intermediary countries (Vietnam, Taiwan, and Mexico), but it also forced the US to pay for unsecured and poorly regulated assets — cryptocurrency.
Without even realising it, the United States injects billions of dollars into the Chinese economy each year. The reason for this is that the vast majority of Bitcoin (BTC), which is primarily exchanged for US dollars around the world, is mined in China. It hosts 65% of all mining farms.
To earn Bitcoin rewards, powerful computers solve complex math problems 24 hours a day, seven days a week. Part of the newly mined coins are immediately sent to crypto exchanges, while the remainder can be kept in the miners’ crypto wallets but is eventually converted to dollars. On average, 900 BTC are mined every day, and the total daily revenue is about $31 million (as of the end of June). That means that in just a year, the miners have earned over $10 billion.
Taking China’s share of mining farms into account, local miners have earned approximately $7 billion since last summer. If the price of Bitcoin and its popularity continue to rise, revenue will more than double or even triple each year. The money will circulate throughout the country’s economy in some form or another: it will be spent, saved, or invested.
Controlled by the Party
The Chinese government is well aware of the volume and importance of US dollar investments via cryptocurrencies. Despite the increased regulation, the authorities are clearly not going to outlaw Bitcoin.es
China restricted crypto transactions for banks and payment companies back in 2013. In 2017, the authorities also shut down local crypto exchanges and blocked access to foreign platforms. Having said that, locals have been able to legally own cryptocurrency for quite some time. What we are seeing now is essentially a reminder of previous restrictions imposed on financial institutions rather than the implementation of new ones.. On one hand, the Chinese authorities want to prevent the “transmission of individual risks to the social field,” and on the other hand, they leave the door wide open for foreign investors.
At the same time, the Chinese government has begun to restrict mining, which has alarmed many market participants. The official reasons are excessive energy consumption and carbon dioxide emissions that prevent the country from achieving carbon neutrality by 2060. But the real situation is a bit different from official statements.
First, the Chinese miners already source cheaper hydroelectricity, which is highly developed in southern provinces, and only switch to fossil-based fuel during the dry winter season when they migrate to the north.
Second, the authorities have completely prohibited all new and existing mining projects in three regions: Qinghai, Inner Mongolia, and Xinjiang. Other provinces with abundant hydropower resources, such as Yunnan and Sichuan, are not in a rush to impose a total ban. While Yunnan was planning to shut down only illegal BTC mining farms “with a campaign against misuse of electricity,” later in June it was reported that all mining farms in Yunnan Province were shutted down.
Rather than declaring war on cryptocurrencies, Chinese authorities appear to be putting things in order. The technological limitations of Bitcoin supply will benefit China: It enables the country to influence the price of the cryptocurrency while keeping it in the hands of miners and not selling it on financial markets. However, if the restrictions continue to be tightened, mining power may be redistributed among other countries. BTC.TOP, Huobi, and HashCow, three Chinese mining equipment manufacturers, have announced that they are suspending domestic sales and expanding their international presence, including to North America.
Who will pick up the idea
On the surface, the possibility of Chinese miners moving to North America appears to benefit the US. Experts, however, have pointed out that the continent does not have a lot of idle energy capacity. Moving countries also takes time, which competitors can take advantage of.
The idea of taking control over not only crypto transactions but also Bitcoin mining is quickly gaining traction in developing countries. In Iran, mining has become one of the most accessible industries amid tough U.S. sanctions. The Iranian government is taking almost the same path as China: The authorities are to ban the use of cryptocurrencies generated abroad, but they allow paying for imported goods with domestically mined coins. Over the past year, Iran earned more than $400 million from cryptocurrency mining, with the United States’ revenue being only twice as much.
El Salvador, the first country to adopt Bitcoin as legal tender, is another country planning the development of mining projects.. President Joe Biden refused to visit. El Salvador’s President Nayib Bukele is considering capitalizing on “very cheap, 100% clean, 100% renewable” energy from local volcanoes.
Kazakhstan appears to be the most politically neutral country in this context. In September, Enegix will open a massive mining centre with a capacity of 180 MW and up to 50,000 mining rigs. Furthermore, Canaan, a Chinese mining equipment manufacturer, has opened a new service centre in Kazakhstan.
China may use the export of their crypto farms to further weaken the US economy, despite the fact that the US government lacks significant leverage to stop the dollar outflow caused by crypto transactions. Imposing a cryptocurrency ban on Americans would be simply undemocratic.
The US government’s only option is to undermine Bitcoin’s appeal in any way possible. This would explain why Elon Musk, the owner of two of the most powerful American companies, Tesla and SpaceX, abruptly shifted his support for Bitcoin to criticising its environmental impact.
The same thing happened to Greenpeace, which no longer accepts cryptocurrency donations after doing so for the previous seven years. It appears that the escalating campaign against Bitcoin is motivated by politics rather than environmental concerns.