A brief history of China FUD
in Crypto News
Bitcoin has had its fair share of FUD (Fear, Uncertainty, Doubt) over the years. Like it or not, the decentralized currency has become a political polarization point, ever since it became clear that the Bitcoin community were not going to give up and disappear.
Bitcoin detractors love nothing more than showering the crypto space with FUD attacks, and one of the most trusty pieces of FUD over the years has been the evergreen story of China banning cryptocurrency.
But is it true that China wants to ban cryptocurrency? And why does China want to ban Bitcoin mining? Join us for a brief history of China FUD.
A brief history of China FUD
Bloomberg, a media company which enjoys a close relationship with crypto-sceptic investment bank UBS, first broke the story on December 5th 2013 that China had 'barred financial institutions from handling Bitcoin transactions'.
This news came right at the apex of a bull market which saw the Bitcoin price make a new all-time-high of 1,151 dollars on December 4th, only to drop slowly back down to 178 dollars over the following year.
Bloomberg subsequently ran an article in December 2014, naming Bitcoin as the worst-performing asset of the year, and declaring it 'mortally wounded'.
The price of BTC traded sideways in 2015, and made a slow recovery in 2016, before finding a new high of $4892 by September 1 2017.
Chinese news outlet Caixin Global reported a fresh China ban on 8 September, which was quickly picked up by Bloomberg, who reported that 'China plans to ban trading of Bitcoin on exchanges', and attributed this information to an unnamed source.
While it was true that the Chinese government were moving to crack down on crypto exchanges, Chinese traders simply switched to buying Bitcoin over the counter, or moved on to peer-to-peer Bitcoin exchanges such as localbitcoins.com:
Also, China-based centralized exchanges such as Huobi and OKEx continued to serve foreign traders, suggesting that the reality on the ground wasn't quite as dramatic as the China FUD was suggesting.
After a 500 dollar drop, Bitcoin quickly recovered by the month's end before going parabolic, reaching a price of almost $20,000 by December 2017.
Crypto then fell into an extended bear market through 2018, which was initially attributed to FUD about South Korea banning Bitcoin, but in hindsight was a perfectly justifiable market correction after hugely overbought conditions and FOMO (the twin sister of FUD).
To demonstrate the fickle nature of China narratives in cryptocurrency, a 2019 declaration by President Xi Jinping that China must 'accelerate the development of blockchain technology' resulted in an almost instant 40% surge in the price of Bitcoin, and looked to be the catalyst that finally helped BTC crack the $10,000 resistance barrier.
This in spite of the fact that many commentators were already warning that Xi's comments were not necessarily bullish for Bitcoin, only a suggestion that China would be moving forwards with the development of its own CBDC (Central Bank Digital Currency), which would offer none of the financial freedoms or censorship resistance of decentralized cryptocurrencies.
Fast forward to April 2021, and the BTC price tops out at over $63,000, only for media outlets to begin reporting mining bans in China's Xinjiang and Sichuan regions, which together formed a majority of Bitcoin's mining power.
This was then followed up by a since-deleted tweet from the Agricultural Bank of China, that simply reiterated their stance on the same crypto ban on financial institutions from 2013, and also a tweet from the social media personality Elon Musk, declaring that Tesla would stop accepting Bitcoin as payment until it adopted more environmentally-friendly mining practices.
Despite the fact that Musk must surely have known about Bitcoin's mining practices before dropping 1.5 billion dollars of company reserves into it, the Double-FUD attack worked, and Bitcoin's price subsequently dropped to $30,000.
What will happen now that China has 'banned' bitcoin mining?
The BTC price is not the only thing that has been falling - Bitcoin's hash rate has also taken a tumble to levels not seen since May 2020:
The ban on mining in the Sichuan region is a great short-term loss to Bitcoin, as it was able to generate a large portion of Bitcoin's hash power using renewable, hydroelectric energy.
Criticism of Bitcoin being 'bad for the environment' is oft-repeated, although the truth of this statement depends on what kind of energy Bitcoin miners are harnessing, and how valuable a truly decentralized currency is to the world.
Governments and financial institutions cannot however sustain a narrative about Bitcoin being bad for the environment whilst simultaneously blocking Bitcoin miners from having access to renewable energy at source.
Much of the energy used by Bitcoin miners is 'trapped energy', ie. energy that would otherwise prove problematic or impractical to transport over long distances. Unless the Chinese government has other plans for the use of this energy, it is now wasted, or worse, released into the atmosphere as CO2.
Some commentators suggest that a mining ban in China might work out for the best over the long run, preventing the Bitcoin hashrate from being centralized in one country by a few large mining companies.
The dropping hash rate also makes the Bitcoin mining difficulty easier, and potentially more profitable for new miners.
Having a more diverse spread of mining operations across the world will definitely be a net win for the Bitcoin community; even more so if these miners can commit to using renewable energy sources.
G20 Governments can help this situation by incentivizing the production of renewable energy, instead of talking about the carbon neutral economy whilst continuing to subsidize the fossil fuel industry in developing nations.
Why does China want to ban cryptocurrency?
China is a one-party state, and the Chinese Communist Party take great pains to promote their idea of harmonious social hegemony.
From crackdowns in Hong Kong and Tibet, to banning the cartoon Winnie the Pooh, the Chinese government have no qualms about prohibiting any kind of activity that might cause the country's leaders to lose face.
And it's worth mentioning that Cryptocurrency isn't the only web-based innovation that the Chinese government has spoken about banning:
Bitcoin, as a decentralized cryptocurrency that cannot be censored or controlled, is an obvious threat to Chinese plans for launching their own, copycat cryptocurrency, the Digital Yuan.
The Chinese government recently launched a lottery initiative with 40 million yuan in prizes ($8.3 million), as an incentive for citizens to begin using their newly-developed CBDC.
The centralized, government controlled Digital Yuan will allow the Chinese government to ramp up surveillance on its citizens, and to streamline international trade with countries and organizations that are signed up to China's ambitious Belt and Road Initiative.
This, rather than concern for the environment, is likely China's main reason for FUDDING on decentralized cryptocurrencies. China, after all, is still responsible for over 50% of the world's coal emissions, and many different industries are freely contributing to this from within the country.
In the face of rising autocracy across the world, Bitcoin's immutability and censorship resistance appears to be more important than ever.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.