Bitcoin mining is facing a China crisis following the news that it is on the list of industrial activities that the Chinese government would like to restrict or eliminate.
The list is published by the National Development and Reform Committee and also includes activities that should be encouraged for the socioeconomic benefit of China.
Unfortunately for Chinese Bitcoin mining, the cryptocurrency is not on the approved list – instead it is among the activities tagged to be phased out.
Its entry reads: “Virtual currency mining activities (production process of virtual currencies such as Bitcoin).”
As such, it is not only Bitcoin mining that would be affected, but also the generation of units of other cryptocurrencies via similar ‘mining’ methods.
What is the NDRC list?
The NDRC published its Guidance Catalogue for the Adjustment of Industrial Structure in 2005 and has updated the list periodically ever since.
New updates were made in 2011, 2013 and 2016, so it is not surprising to see a new edition published in 2019 as well.
The list spans a broad range of Chinese industries, with particular focus on heavy industry like power generation, metal mining and so on, as well as a strong emphasis on improving environmental performance.
Bitcoin’s inclusion on the list is an indication that the NDRC considers cryptocurrency mining to be a waste of resources – either by contributing towards pollution or by offering little productivity or value.
Is this the end of Chinese Bitcoin mining?
Not necessarily. Although it has been widely reported as a ‘ban’ on Chinese Bitcoin mining, the list itself serves only as a guide for medium-term strategy in the affected industries.
It does not criminalise cryptocurrency mining, although it makes clear that the NDRC does not consider it to be a helpful activity in terms of contributing to the Chinese economy.
That is perhaps also unsurprising, as cryptocurrencies have so far been favoured by those who want to hold currency in a form that is not under tight government control or easily traceable, as well as those who mine or buy Bitcoin as a capital-generating investment.
But it does not mean it is illegal to mine cryptocurrencies in China – and there are reasons why it is unlikely to become illegal in the near future.
How the NDRC list is implemented
When it comes to reducing activity in the areas restricted by the NDRC list, jurisdiction falls to local authorities in the different regions of China.
Notably, since 2005, local governments have been required to fall back on existing laws and regulations when preventing people from engaging in activities on the ‘elimination’ part of the list.
For Bitcoin mining, the greatest risks include the ability to raise the price charged for electricity or to cut off the electricity supply completely, although it is not yet clear what existing local laws might allow this to be done.
What does this mean for cryptocurrency investment in China?
The battle is not yet over. Including cryptocurrency mining on the list is a sure sign that the NDRC wants to bring an end to the practice, but those working in the sector are fighting their corner too.
Summertime in China typically brings with it an excess supply of electricity, leading to lower prices for power supplies throughout the season.
With insufficient capacity to store the excess electricity, some Bitcoin miners are already pointing out that the practice is not a waste of resources, but quite the opposite, as it makes good use of the otherwise lost surplus.
There is historic precedent for items being removed – or at least amended – after being included on the list for elimination, and for the list not being enforced where it is deemed to be at odds with local productivity.
Overall, this is certainly not a welcome development for cryptocurrency investors, but the issue remains one of ‘wait and see’ until it becomes clear what the long-term consequences will be.
http://gys.ndrc.gov.cn/cyjgtzzdml20190408.pdf (p120)
https://www.investing.com/news/cryptocurrency-news/china-wants-to-ban-bitcoin-mining-1830778
https://www.coindesk.com/chinas-new-policy-isnt-an-automatic-bitcoin-mining-ban-heres-why
http://www.gov.cn/zwgk/2005-12/21/content_133214.htm
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
