China is reportedly considering banning cryptocurrency mining according to a draft report from The National Development and Reform Commission (NDRC). The practice is allegedly on a list of industrial activities the government is considering calling time on due to its desire to curb excessive production capacity. The news evokes memories of late 2017 when frequent negative news stories emanating from China had profound effects on the price of Bitcoin, with the events usually ending up being overblown or entirely untrue and becoming known as ‘China FUD’.
— Reuters Top News (@Reuters) April 9, 2019
China’s Mining Dominance Threatened
Reuters reported Tuesday that the NDRC has outlined over 450 activities they wish to abolish “within a fixed deadline”, one of which is the mining of all cryptocurrencies including Bitcoin. These activities, according to Reuters, “did not adhere to relevant laws and regulations, were unsafe, wasted resources, or polluted the environment.” The public has until May 7 to respond to the proposals, with no timeline given for the phasing out of these targeted industries.
Chinese Bitcoin mining farms currently account for around 70% of the cryptocurrency’s hashrate, so an overnight cessation could spell short term disaster, although it is doubtful that every mining farm in China would cease operations that quickly. Even if they did, there would likely be a short term drop in the hashrate before the slack was picked up by other farms worldwide, and we would probably end up with a less concentrated mining pool once the dust had settled and the headlines had abated.
China’s Bitcoin Price Power
China’s actions have always held large sway when it comes to Bitcoin’s price. Today’s news has echoes of September 2017 when China banned ICO participation for nationals, which it supposedly followed up a week later with a Bitcoin trading ban. The combined one-two knocked Bitcoin’s price down from $5,000 to $3,000 within ten days. Both bans arrived but had minimal impact after the price drop, with many suspecting it was media manipulation from Bitcoin whales trying to drop the price to pick up more.
Should this supposed mining ban turn out the same ploy, holders would do well to continue to do so – the drop to $3,000 was the match that lit the 2017 bubble and saw Bitcoin rocket up to $20,000 just three months later. A repeat of the same would be most welcome.