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Xiaolei: Why PBoC Wants To Shut Down Bitcoin Mining Farm?

A screenshot was trending among bitcoiners yesterday, in which Chandler Guo says China is to shut down all bitcoin mining farm and trading and holding of cryptoassets are offense to financial orders. The picture was soon denied by Chandler Guo, who claimed it was fake news.

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However, it is confirmed by other mainstream media that China authority is actually containing the development of bitcoin mining farm within its border. Measures include: business registration, cancelling premium policy on power rate, taxation, land use etc. Xiao Lei, a famous financial analyst, believes that the decision should be viewed from a broader perspective. He also alerts that the attitude of the authority on bitcoin mining is very clear: winding down bitcoin mining farm in China.

Capital Flight?
From 2018 on, all debit card issued by Chinese bank are allowed to withdraw no more than 100,000 CNY abroad. It’s another indicator that China is tightening its control on capital outflow.
Bitcoin could circumvent such containment due to its global adoption.

According to Xiao’s calculation, bitcoin and other minable cryptocurrencies generated in China might amount to the equivalent of 1 billion USD every month, or 70% of global output. Will it lead to large-scale of capital flight?

“In fact, it is very difficult for China’s mining industry to cause the loss of its foreign exchange reserves because the bitcoin generated in China will be sold for USD in the international exchanges. Even the USD funds stay in the international exchanges, it won’t lead to capital flight. The worst case is that it may result in some concentrated flow of money at home. Such flow is like the money traffic between stock exchanges and real estate market. As long as they do not involve problems like illegal fund-raising, it’s hard to say it will cause negative impacts.”

Impact on real economy
However, Xiao points out that the “bitcoin mania” may impact the physical economy. For example, if listed companies started mining farm or the public is mad about buying miners to acquire cryptocurrencies, it will lead to a direct impact on certain industrial planning and development goals designed by government.

The major concern of China is that cryptocurrency is big enough to threaten China’s economic policy and development plan.

How to de-Chinalize in mining business?
Xiao describes the 5 steps that the situation might evolve.

1. As PBoC is not the direct regulating authority over bitcoin mining, it has to raise issues on energy use, power station, environment to contain the situation. Also the execution of such measures relies on local government.
2. Local government may implement the policy in different ways. Some may act fast but none would defy authoritative order.
3. The hard part is to find a proper legal standing for shutting down mining farms. As bitcoin is not declared illegal in China, it’s difficult to justify shutting down the bitcoin mining business.
4. Some large mining farm might be shut down and set as an “example” in China. The expansion of small mining farm set up by small entities and individuals will be less impacted.
5. As the central bank cannot exert direct pressure on the power sector, but the message is very clear: we do not encourage supplying power to mining farms. On the other hand, large mining farms consume lots of power and contribute significant revenue to local power sectors. It’s noteworthy to see how the authorities balance their interests.

Cutting power supply is the most direct measure to shut down mining farms in China. Some big mining farm might be affected.

Keep an eye on the hashrate.

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