Cryptocurrency mining companies, including Huobi Mall and BTC.TOP, have suspended their operations in China after Beijing increased its efforts to crack down on Bitcoin mining and trading, sending the digital currency tumbling. The efforts were announced late Friday by a State Council committee led by Vice Premier Liu He. It is the first time the council has targeted virtual currency mining, a big business in China that accounts for up to 70% of the world’s crypto supply.
Crypto miners use increasingly powerful, specially designed computer equipment, or rigs, to verify virtual coin transactions, resulting in the creation of new cryptocurrencies such as Bitcoin. Bitcoin has taken a beating as a result of the latest Chinese move, and it is now down nearly 50% from its all-time high. It fell as much as 17% on Sunday before paring some losses and closing steady in Asia.
Investor protection and money laundering prevention are top priorities for governments and financial regulators debating whether and how to regulate the cryptocurrency industry. Last week, US Federal Reserve Chairman Jerome Powell stepped up his criticism of cryptocurrencies, saying on Thursday that they pose a risk to financial stability and that more regulation may be necessary.
Huobi Mall, a subsidiary of cryptocurrency exchange Huobi, announced late Sunday that all of its custody operations had been halted. “Meanwhile, we’re contacting overseas service providers to pave the way for future mining rig exports,” Huobi Mall said via its official Telegram community, urging customers to “not worry and calm down.”
BTC.TOP, a cryptocurrency mining pool, has also announced the suspension of its China operations, citing regulatory concerns. Founder Jiang Zhuoer stated in a Weibo microblog post that BTC.TOP will primarily conduct crypto mining business in North America in the future.
“Nearly all Chinese crypto mining rigs will be sold overseas in the long run, as Chinese regulators crack down on mining at home,” he wrote. China has already lost its position as a global cryptocurrency trading hub since the country banned cryptocurrency exchanges in 2017.
“Eventually, China will lose crypto computing power to foreign markets as well,” Jiang predicted, predicting the rise of mining pools in the United States and Europe. HashCow, another cryptocurrency miner that owns ten mining sites in Chinese provinces such as Xinjiang and Sichuan and sells computing power to investors, has stated that it will fully comply with government regulations.
HashCow said in a statement to clients that it will stop purchasing new Bitcoin mining rigs and will issue a full refund to investors who had placed orders for computing power but had not yet begun mining.
Aside from the sheer magnitude of the drop in virtual currencies last week – the Bloomberg Galaxy Crypto Index fell nearly 40%, the most since the pandemic turmoil in March of last year – significant intraday price swings have also piqued investor interest.
Nonetheless, RBC derivatives strategist Amy Wu Silverman argued in a note Sunday that, based on a risk-adjusted return measure known as the Sharpe ratio, Bitcoin has outperformed Tesla Inc., the SPDR S&P 500 ETF Trust, and the Invesco QQQ Trust Series 1. Bitcoin, Ether, and meme virtual currencies such as Dogecoin have all made significant gains over longer time periods, such as the last year – approximately 12,000 percent in the case of Dogecoin.
Bitcoin is “firming its grip on markets through volatility, liquidity, and correlation,” according to Ben Emons, managing director of global macro strategy at Medley Global Advisors in New York.