China didn’t crack down on Bitcoin, but on its own financial industry

China’s strict Bitcoin and crypto policy is part of a much wider endeavour: A crackdown on financial experiments and risk.

The Chinese government left no room for interpretation: The latest regulations make anything related to buying, selling or in general dealing with Bitcoin and crypto illegal for its citizens. Sure, it’s impossible to make Bitcoin disappear as a government (as Nigeria has shown), but at least for serious businesses, exchanges, and miners it’s game over (for now) in China.

So what happened? In the past few months, we’ve seen a general crackdown on (fin)tech companies and even traditional banking and investment firms in China. So this seemingly final crypto ban is part of a much larger political plan. Lately, the Chinese Communist Party stopped the IPO of China’s largest fintech Ant Group and made Jack Ma, one of the worlds richest people and China’s most famous internet entrepreneur, disappear and reappear again. They announced they’ll send government officials into the 25 largest financial institutions to take a closer look at their practices. They also introduced a plan called “three red lines” which aims at reducing the debt leverage of real estate developers. Exactly this policy triggered the Evergrande-crisis, as the highly overleveraged real estate developer has to figure out now how to comply with the “three red lines”.

You see: It boils down to reducing risk and getting more oversight over the domestic financial system, which enjoyed quite some freedom in the past. The consequences for the broader crypto market are severe, as China is officially not a part of it anymore. For China itself, on the other hand, crypto is not a priority.

While the crackdown on financial institutions and the systemic risk connected with them was and is China’s definitive priority, there are a couple of other reasons why. One of them is simple: The Chinese government doesn’t want money to leave the country. Especially not the money of their wealthier citizens. It’s easy to maintain control over the official, state-owned financial services providers, but it’s impossible to stop  Bitcoin transactions and it’s getting harder to surveil it (eg. CoinJoins). 

On the other hand, China (like the rest of the world) is experiencing a full-blown energy crisis, plus wants to become carbon neutral by 2050. In 2019 75% of Bitcoin’s energy consumption took place in China, specifically in areas like Inner Mongolia due to the low electricity costs of mainly coal power plants.

Another factor is that China’s government wants to assert sovereignty over communication and computing networks.  Having banned western services like Facebook or Google and having released domestic alternatives the path is already clear: China wants to do its own thing, with full control over the network and the decision-makers.

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Photo by Hanny Naibaho on Unsplash.