China’s State Council, the country’s central government body, released the minutes of the May 21 meeting of the Financial Stability Development Committee. The meeting participants commented on the “crackdown on bitcoin mining and trading” as part of the committee’s efforts to prevent financial risks.
This is the first known time comments relating to bitcoin mining and trading have been raised at a State Council committee meeting as a high-level signal. It remains to be seen whether and to what extent this top comment will be implemented. But it seems that the news has already spooked local investors.
In the hour after 22:00 local time, HT, OKB and BNB, the exchange tokens of Huobi, OKEx and Binance, serving crypto traders from China, fell 17%, 19% and 10% respectively. The decline continued in the following days. Meanwhile, BTC and ETH fell around 10% shortly after the news broke, but have since returned to $37,000 and $2,300 respectively.
In addition, within hours of the news hitting the Chinese crypto and mainstream media, the exchange rate between USDT Tether against RMB on the OTC tables began to fall to a markedly negative premium over the exchange rate between RMB and USD.
This means that local traders, including miners, are seeing a growing volume of orders to convert their USDT into RMB through OTC tables amid uncertainty caused by comments from the State Council meeting.
Dovey Wang, founding partner of Primitive Ventures, said on Twitter that she “knew that several major miners had already cashed out in the last six hours since the news broke, mercilessly selling and using every possible channel to get fiat money off the ramp”.
The real-time quote for $1 on the OTC tables on Huobi , OKEx and Binance is now 6.33 yuan, but has fallen from 6.5 yuan before the news to 6.2 yuan around midnight Chinese time on Saturday. At present, the exchange rate for 1 US dollar is currently around 6.44 yuan.
Meanwhile, blockchain data shows that the real-time hash rate associated with major bitcoin mining pools has dropped from small to moderate in the 24 hours since the news was released. However, the Huobi bitcoin mining pool has fallen 29% in the last 24 hours. Overall, there has been a significant drop in bitcoin hashing rates since last week due to power plants in China’s Sichuan province facing power restrictions.
Thursday’s meeting is a regular meeting of the Financial Stability Development Committee to discuss their high-level priorities in the financial space and was chaired by Chinese Vice Premier Liu He, who is considered the right-hand man of Chinese President Xi Jinping. Liu was also known for leading a group of Chinese delegates during trade talks with the Trump administration over the years.
Based on the meeting notes, the committee put forward three priorities: “make sure that the financial industry better serves the economy”, “commit to preventing financial risks” and “continue deepening reform”.
In addition to combating bitcoin mining and trading activities, other priorities such as reducing credit risks, strengthening regulation of companies’ financial activities, maintaining the stability of stock, debt and currency markets, among others, were mentioned as part of “preventing financial risks”.
The comments made at the meeting are not a formal regulation. They require more specific rules under which a government agency will guide implementation. For example, in September 2017, the People’s Bank of China, along with six other government ministries, introduced a ban on initial coin offering and cryptocurrency fiat trading.
But comments on bitcoin mining come at a time when China is stepping up efforts to achieve the carbon neutrality that Xi promised in his recent remarks.
The Inner Mongolia government has already taken a series of measures to push out bitcoin mining operations in the region, where energy is largely based on coal. This week it set up special email and postal addresses, as well as a hotline for the general public to find out the location of any active bitcoin mining farms.
Nevertheless, if high-level comments on cracking down on bitcoin mining activity are implemented in the coming months, it could accelerate the global decentralisation of bitcoin hashrate from China, where the dominance of computing power is already disappearing.
At the time of publication, no major bitcoin mining operations in China, with the exception of B. Top, a joint mining and hardware brokerage within China’s BTC.top mining pool, had not publicly made any immediate changes to the business.
Jiang Zhuo’er, founder and CEO of BTC.top, said on Weibo early Saturday morning local time that his B. Top business will stop serving customers who are based in mainland China.
“B. TOP has not received any regulatory requirements from the relevant government authorities. But given the latest regulatory signal and the fact that B. TOP from mainland China accounts for a small portion of our own mining business, there is no need to continue to offer brokerage services to mainland Chinese customers and take on additional regulatory risks,” Jiang wrote.
