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Following a good start to the year, Bitcoin and other cryptocurrencies encountered new headwinds this week. China’s announcement of new restrictions prohibiting all cryptocurrency mining and transactions was the most significant development and the most painful loss. The government left no room for interpretation: in the world’s most populous nation, purchasing, selling, and otherwise dealing in cryptocurrency is now strictly prohibited.

On Friday, ten government agencies, including the People’s Bank of China, published a joint statement vowing to crack down on cryptocurrencies and denouncing the technology as a threat to citizens’ assets and a facilitator of illegal activity such as money laundering. Bitcoin’s price plunged roughly 8% in response to the news, but recovered somewhat later in the day. Other, lesser-known cryptocurrencies suffered even greater losses.

In recent years, China has enacted increasingly restrictive legislation governing cryptocurrency. Previously, the country prohibited firms from providing Bitcoin-related services and operating cryptocurrency exchanges. These new laws go even farther, effectively prohibiting the majority of activities necessary for the Bitcoin ecosystem to exist. Even cryptocurrency exchanges located outside the nation will be prohibited from serving Chinese residents. Additionally, the country’s National Development and Reform Commission said that it would shut down cryptocurrency mining activities, which consume vast quantities of electricity to solve complicated mathematical problems in exchange for units of digital currency. Last week, the agency intensified its campaign to eradicate unlawful mining in the country by targeting individuals who pose as data researchers in order to conceal these energy-intensive operations.

China has historically been a favored mining location due to low electricity costs in locations such as Inner Mongolia, but the country is currently undergoing an energy crisis and attempting to achieve carbon neutrality by 2050, a goal made more difficult by Bitcoin. In 2019, China accounted for 75% of global Bitcoin energy usage. This figure fell to 46% in spring 2021 and is projected to fall even further with the new limits announced on Friday.

The Chinese government’s drive to regulate cryptocurrencies is partly motivated by a desire to impose greater control over the country’s economic activity. Because Bitcoin and its ilk were created to facilitate transactions without the intervention of institutional agencies such as banks or governments, enabling them to grow in any country deprives state actors of some power. China is now attempting to displace Bitcoin by developing its own digital currency, dubbed eCNY, that will be backed by the government. eCNY, on the other hand, bears just a passing resemblance to Bitcoin and does not utilize blockchain, the distributed ledger technology at the heart of all cryptocurrencies.

The announcement of new limitations in China was not the only item this week that weighed on cryptocurrency. Bitcoin and other cryptocurrencies prices tumbled as well on Tuesday, following the bankruptcy of megadeveloper Evergrande, which was once China’s second-largest construction giant. Evergrande’s revenues have been unable to keep up with the corporation’s extravagant spending, and the company is now more than $300 billion in debt. The collapse of such a large organization devastated the stock market and caused a big selloff of cryptocurrencies. When markets are volatile, investors tend to liquidate their riskier assets, and cryptocurrencies are one of the most dangerous financial wagers you can make. Bitcoin’s price fell 5.7 percent from Monday to Tuesday.

Regulators in the United States are also focusing their attention on Bitcoin. On Tuesday, Securities and Exchange Commission Chairman Gary Gensler spoke extensively about cryptocurrencies at a Washington Post event, and he did not appear overly bullish about their future. Gensler stated that he does not believe cryptocurrency markets have a “long-term viability” and later indicated that the SEC is working “overtime” to develop new laws for cryptocurrency markets that are likely to be much more aggressive than current restrictions. The fact that Gensler left the door open to regulating stablecoins, or cryptocurrencies tethered to fiat currency, as securities is particularly concerning for the cryptocurrency. If this is the case, a number of Bitcoin loan and trading platforms would be in gross violation of SEC regulations.

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