The State Council publicly called for the first time to "crack down on Bitcoin mining, etc." What is the impact?

Wu said author | Colin Wu

Editor of this issue | Colin Wu

It still happened.

Although Wu said that Blockchain had heard of the news several days ago, it did not expect it to come so quickly or be publicly announced at such a high level.

According to the Chinese government website, on May 21, the Financial Stability and Development Committee of the State Council (hereinafter referred to as the Financial Committee) held its 51st meeting to study and deploy key tasks in the financial field in the next stage. There are three main parts: the first is to further serve the real economy, the second is to resolutely prevent and control financial risks, and the third is to continue to deepen reform and opening up.

The second point includes: maintaining a bottom-line mindset, strengthening all-round scanning and early warning of financial risks, promoting the reform and risk reduction of small and medium-sized financial institutions, focusing on reducing credit risks, strengthening the supervision of platform companies' financial activities, cracking down on Bitcoin mining and trading, and resolutely preventing individual risks from spreading to the social field. It is necessary to maintain the stable operation of the stock, bond, and foreign exchange markets, severely crack down on securities violations, and severely punish financial crimes. It is necessary to strictly guard against external risk shocks, effectively respond to imported inflation, strengthen expectation management, strengthen market supervision, and make response plans and policy reserves.

Related to the cryptocurrency industry is: cracking down on Bitcoin mining and trading activities, and resolutely preventing individual risks from spreading to the social field.

In fact, similar documents had been distributed internally as early as the beginning of 2018.

According to China Business News, the Internet Finance Risk Special Rectification Office Leading Group (hereinafter referred to as the "Internet Finance Rectification Office") recently issued a notice on Bitcoin to all provinces (autonomous regions, municipalities) and Shenzhen City's Internet Finance Risk Special Rectification Office, dated January 2, 2018.

In the above notice, the Internet Finance Regulation Office stated that according to relevant departments, there are currently some so-called "mining" companies that produce "virtual currency". While consuming a lot of resources, they have also contributed to the speculation of "virtual currency" investment. For the next work arrangement, the Internet Finance Regulation Office put forward two requirements: First, actively guide the companies under its jurisdiction to exit the "mining" business in an orderly manner, and actively coordinate with relevant departments under its jurisdiction to take multiple measures and comprehensively adopt electricity prices, land, taxation and environmental protection measures to guide the orderly exit of relevant companies; and require local regulation offices to report the basic situation of the "mining" companies under their jurisdiction and the situation of guiding the exit before January 10. Second, in order to keep abreast of the progress of work in various places, local regulation offices are required to fill in the relevant situation of the "mining" companies under their jurisdiction before the 10th of each month.

However, the "State Council Financial Stability and Development Committee" that met on May 21, 2021, is much higher in level than the "Internet Finance Risk Special Rectification Office Leading Group" in early 2018. The former is headed by Vice Premier Liu He, who is in charge of the economy; the latter is headed by the deputy governor of the central bank, and there is a difference of several levels between the two.

Since there were only two short sentences in the meeting, the future implementation of the policy remains to be seen. However, given the high level of this meeting, the results may not be optimistic.

However, some industry insiders pointed out that Bitcoin as a virtual commodity is not illegal, and mining as the operation process of producing Bitcoin does not seem to be illegal. From this perspective, the word "crackdown" rather than "ban" used in the meeting means that restrictions are mainly imposed from the perspective of preventing financial stability and high energy consumption, rather than "one size fits all". Of course, this is just a beautiful guess by industry insiders. The subsequent high probability is to issue documents to various provinces and cities to crack down on mining, but the implementation degree and intensity of the crackdown in various provinces and cities also depend on the attitude of the top leaders.

The sudden call to crack down on Bitcoin mining is accidental, and also due to the recent domestic and overseas media hype about the high energy consumption of Bitcoin mining. Previously, Nature magazine published a study by scholars from Tsinghua University and the Chinese Academy of Sciences, pointing out that China's Bitcoin mining energy consumption exceeds that of a European country, undermining China's carbon neutrality policy. Raising it to such a political level makes people feel that a storm is coming. Recently, Musk has brought the issue of Bitcoin's energy consumption to a climax, which may eventually lead to today's meeting decision.

At present, many cryptocurrency mining areas, such as the northwest and southwest regions, have serious local debt and power abandonment. Bitcoin mining has a significant impact on the finances, employment, and income of residents in poor areas, and it also helps new energy facilities to gain profits and further expand their scale. I believe that similar rational analysis and research will continue to be fed back by various industry professionals through various channels.

As for trading behavior, the country has banned any institution from participating in the transaction. Individual-to-individual transactions are not illegal at present. What needs to be noted is the latter sentence "resolutely prevent individual risks from being transmitted to the social field", which alludes to the craze caused by the animal farm before, and various animal coins have repeatedly been on the hot search. After the three central bank associations issued the document, the industry was still worried about whether the central bank would follow up with a document, but they did not expect that the higher-level State Council Financial Stability and Development Committee would follow up. However, at present, the main bodies of the exchanges are all overseas, and whether to take tough measures similar to those against P2P is still unknown.

It is also worth noting that there are very few countries in the world that prohibit Bitcoin mining. Developed countries and regions, including Hong Kong, are also moving further and further on the road to Bitcoin compliance. Hong Kong has approved compliant exchanges and multiple funds in the past year. Earlier, Li Bo, deputy governor of the People's Bank of China, said that if cryptocurrency is used as an investment tool, many countries, including China, are also studying what kind of regulatory environment should be for such an investment method to ensure that speculation in such assets will not cause serious financial risks. Before we figure out what kind of regulatory rules are needed, we will continue to maintain our current measures and practices.

In this regard, we also expect Chinese decision makers to study and learn from international experience and explore industry paths suitable for China's development on the basis of social and financial stability.