However, the announcement that China is proposing a possible BTC mining ban may have sent bitcoin into a downward spiral again.

So far, the fall is not catastrophic, with the price hovering just over the $5,000 mark. However, the expected continuation of the surge has failed to materialise as some predicted.

After the surge there was talk online as to what might be fuelling it, apart from a previous bottoming out – and it emerged that, despite China banning cryptocurrency, there was still a healthy over-the-counter (OTC) market, with whales in China buying BTC OTC to avoid detection.

Crypto was banned in China in 2017 – but Chinese crypto analyst “light” told Btcnn.com that investors in China are still in the market for cryptocurrency via stablecoins, VPNs (virtual private networks) and OTC.

“We are witnessing a resurgence in Chinese demand for cryptocurrencies,” said light.

“This trend in the making comes after more than a year of relative quiet, a reminder of the time when Chinese volumes were king. For a variety of reasons, not least of which are the volatility and offshore functionality, cryptocurrencies had taken hold of the Chinese investing public’s imagination. In late 2016, more than 90% of bitcoin volumes were paired against the Yuan.”

Public consultation in China

The public consultation in China over a possible ban on mining BTC is open until 7 May.

China is a hub of BTC mining operations, so any potential ban could have serious effects on crypto markets. As all markets are sensitive to external pressures and noise, just the prospect of a BTC mining ban in China might be sufficient to cause the jitters.

Mining is an energy-greedy procedure – but China’s fossil-fuelled energy base (mainly coal) makes it an economically sound location for bitcoin mining operations and the vast amount of energy required to power mining.

Moreover, rather than causing a BTC price crash, analysts feel that a China ban on bitcoin mining would serve to push the price up and reap bumper rewards for investors because of the higher cost of mining, which is a pleasant thought for some.

However, CEO of mining software company Cudo Miner, Matt Hawkins, says:

“If local authorities begin targeting mining farms, this could have a substantial impact on bitcoin’s global infrastructure.

"People talk a lot about the risks of a 51 per cent attack, but the problem with accumulating so much centralised hash power in areas such as China is that – should it be turned off – the bitcoin network’s performance will be harmed."

Why China wants to ban Bitcoin mining

China’s economic planning organisation – the National Development and Reform Commission (NDRC) – has a list of 450 undesirable industries which it may eradicate altogether or foster. Bitcoin mining has caught its attention as one of these undesirable industries.

China claims that bitcoin mining has “seriously wasted resources” – and the proposal is also linked to environmental concerns because of the excessive use of coal in China’s energy industry.

Research has shown that 74% of bitcoin mining takes place in China and as a result, China is bearing the brunt of environmental fallout from BTC mining.

CEO of Hut 8 Mining Corp., Andrew Kiguel, however, defends the energy-greedy mining industry. Hut 8 is one of North America’s largest crypto mining companies and the world’s largest publicly traded crypto mining company. Speaking to Bitcoin Magazine in October 2018, he said:

“Unfortunately, there are many misconceptions around energy use and why it’s required to safely and securely transact cryptocurrencies…

“Today, the world’s biggest industry is the trading of currency, estimated to be over $5 trillion daily! That’s more than 70 times larger than all trade in goods and services and 25 times larger than the world’s GDP. Even at this scale, currency trading doesn’t accomplish stable monetary values across world economies. Instead, the main function of currency trading is to enable traders to speculate on currencies and central banks to maintain more than $250 trillion of debt on the world economy.

“Bitcoin is the emergence of a new world monetary system. Gold is the only monetary element that has endured through centuries, and bitcoin is the new gold.”

He goes on to explain how, at the start of the 20^th century, paper currency began as bills of exchange for precious metals like gold and silver, with governments decoupling currencies from being “underpinned by gold”.

“Sound monetary policy is the basis of capitalism,” says Kiguel.

Looking deeper into China and it's crypto bans

China has embraced capitalism and is the world’s second largest economy after the US. However, its concentration of bitcoin mining has given it a unique influence in the bitcoin market. China has already banned crypto and there was a great deal of debate on why at the time – in September 2017, exchanges were suddenly ordered to close and crypto trading was banned.

Mining of bitcoin was not banned at the same time, however.

The unregulated decentralized peer-to-peer ethos of cryptocurrency and blockchain is perhaps at odds with China’s more authoritarian style of governance.

When crypto was banned in China another theory was that visitors to the country were using bitcoin instead of buying Yuan – yet another hypothesis was that China was actually planning to launch its own cryptocurrency.

We have recently seen JP Morgan Chase launch its own cryptocurrency for corporate clients only, not really embracing the sprit of crypto as a payments system with access to all areas for everyone.

However, as the value of cryptocurrency as a new type of money overcomes the suspicion that has at times surrounded it, it may be that governments and corporates will begin to capitalise on it themselves.

If restricting mining or selective banning of cryptocurrencies only serves to push up the price, investors will no doubt be pleased. But if the ethos of crypto is lost and it becomes the foundation of a new capitalist exclusivity, then there is a risk that “the new gold” will be available only to the few not the many once again.

Andrew Kiguel of Hut 8 Mining Corp. does not buy into the theory that energy consumption is a real downside of mining:

“Let’s consider the amount of energy used to consummate a financial transaction in the traditional sense, which involves several players. Online banking, traditional banking and credit card companies all require expensive ledger storage systems and capital movement systems that are inefficient, slow and costly.

“In contrast, a bitcoin transaction is settled the moment it hits the blockchain, never traveling through third-party institutions that collect fees along the way. The miner who added it to a block did use electricity, but that amount is substantially less than the energy needed to keep Fortune 500 financial companies running at full steam for a few days. How much electricity is consumed daily to maintain over $5 trillion of daily currency trading operating?

“In addition, miner energy use rises or falls depending on the amount of competition between miners, not the number of transactions being validated. It’s a misconception that additional bitcoin use would lead to more energy consumption.”

We can only guess at the reason China now wishes to ban bitcoin mining – and await the results of the public consultation after 7 May. No doubt China’s whales will have plenty to say.

China crypto image licensed via Shutterstock