Bitcoin drops to $33,000 level as China steps up crackdown on mining

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Following China’s crackdown on Bitcoin mining due to environmental concerns and risks of using them for unauthorized payments, the Bitcoin price plummeted by 7.5% on Monday and is currently trading around $33,000 mark. China accounts for around 75% of the world’s bitcoin mining capacity due to cheap electricity and its established technology supply chains.

Ether, the second-biggest cryptocurrency, also declined by 9% to $2,013. The global crypto market cap is $1.38T, a 7% decrease over the last day, according to Coinmarketcap.com.

Closure of mining projects

According to media reports, Chinese authorities have ordered cryptocurrency mining projects closed in the major mining centre to the southwest province of Sichuan, demanding the closure of 26 suspected cryptocurrency mining projects.

We gonna witness a history in bitcoin mining tonight, all mining farms (about 8m kw electricity load) will shutdown at 12pm Beijing time tonight, Harare rate already dropped significantly after sichuan gov announce shut down bitcoins mining farms in Sichuan. pic.twitter.com/xRfqMCgWY1

— Molly (@bigmagicdao) June 19, 2021

Reuters report stated, Sichuan is China’s second-biggest bitcoin mining province, according to data compiled by the University of Cambridge. To make the most of its hydropower resources many miners move their activities to Sichuan in the rainy season. Other mining regions include Inner Mongolia, Xinjiang and Yunnan. Earlier the crackdown was limited to regions where mining was done based on coal but the recent crackdown in Sichuan and Yunnan, where mining is mostly based on hydropower, shows the Chinese government overall tough stance on the mining of Bitcoin. It is considered a risk even when used as a method of payment.

The Basel Committee

Earlier, given the risks involved with cryptocurrencies, The Basel Committee on Banking Supervision (BCBS) proposed that banks will have to meet high capital requirements for holdings cryptocurrencies under global regulators’ plans to ensure financial stability from the volatile market. It proposed 1,250% risk weight be applied to the maximum of long and short positions banks are exposed to.

The report titled Prudential treatment of crypto-asset exposures which was released on June 10, 2021, stated, “The growth of crypto assets and related services has the potential to raise financial stability concerns and increase risks faced by banks. The capital will be sufficient to absorb a full write-off of the crypto-asset exposures without exposing depositors and other senior creditors of the banks to a loss.”