This past Friday May 21st, 2021, Bitcoin and other cryptocurrencies crashed as a result of China’s statement that same day, cracking down on Bitcoin mining and trading of cryptocurrencies. Chinese Vice Premier Liu He and the State Council issued a statement citing concerns over the cryptocurrencies mining and trading risks to China’s national economy. The statement, which was released late Friday in China, said it is necessary to “crack down on Bitcoin mining and trading behavior, and resolutely prevent the transmission of individual risks to the social field.” Bitcoin’s price on Coin Metrics slid more than 8.5% as news of the statement circulated, part of a broader plunge that has seen the digital currency tumble more than 40% from its peak.
Additionally, China’s rhetoric on Bitcoin comes just a day after U.S. officials pledged to get tough on those using bitcoin to conduct “illegal activity broadly including tax evasion.” Following that announcement, the Treasury Department said it will require reporting on crypto transfers of more than $10,000, just as with cash (Jeff Cox, CNBC).
But the concerns specifically in China stemmed from a number of issues, surprisingly the number one likely being related to energy. Much of bitcoin mining is done there by computer that use massive amounts of energy to solve complex math problems to unlock the cryptocurrency. Additionally, those same Chinese financial authorities raised similar concerns to the Treasury Department, regarding the use of the cryptocurrency as a mechanism to make money in illicit ways. Their statement went on to say, “It is necessary to maintain the smooth operation of the stock, debt, and foreign exchange markets, severely crack down on illegal securities activities, and severely punish illegal financial activities”. However, it’s important to note, as part of an effort to enter the booming digital currency space, China’s central bank has been one of the first in the world to develop its own digital currency backed by the yuan.