Experts warn about cryptocurrency risks
China set to crack down on digital coins amid roller-coaster fluctuation in prices of these assets
The Inner Mongolia autonomous region released a draft plan on May 25 to phase out cryptocurrency “mining” activities in the region, which came in the wake of the central financial regulating authorities’ restrictions on bitcoin mining and trading.
Wang Juan, a member of the Blockchain Expert Policy Advisory Board of the Organisation for Economic Co-operation and Development said cryptocurrency-related transactions, largely driven by speculation, have already caused roller-coaster price fluctuations in recent months and uncertainty in global financial markets.
“Unlike the ways of mining bitcoin and other cryptocurrencies in the early stage, companies now are crazily seeking to consume a superlarge amount of industrial power at any cost. This will no doubt cause a massive waste of electricity and huge carbon emissions in China,” she said.
The Inner Mongolia draft outlined eight measures to root out cryptocurrency mining operators and those facilitating the operations.
Any enterprise or individual using cryptocurrency for money laundering or fundraising activities in the region could face a criminal offense, the plan said.
An Guangyong, a financial adviser and member of China Mergers and Acquisitions Association, said cryptocurrency mining does not bring any social value but causes a huge waste of power. “It does not align with many countries’ efforts to reach a green economy. China, for instance, has promised to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060,” he said.
According to research published by Nature Communications, China accounts for more than 75 percent of bitcoin mining globally. Bitcoin is projected to generate more than 130 million metric tons of carbon emissions in China by 2024, the report said. On May 21, a meeting of the Financial Stability and Development Committee of the State Council (China’s Cabinet), said that the government was determined to crack down on bitcoin mining and trading, adding individual risks should not be allowed to spread to the whole society.
In May, three financial industry associations — the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China — banned financial and payment institutions from involvement in the cryptocurrency business.
Zhang Xiaoyan, deputy director of Tsinghua University’s PBC School of Finance, said: “The regulatory policies for bitcoin and other virtual currencies will also protect small and medium-sized investors through preventing them from speculative transactions. There are a large number of retail investors in China, and many of them lack a deep understanding of virtual currencies.”
Analysts warned of more headwinds from institutional constraints on cryptoasset investment, including the potential for more regulation.
Bitcoin, the world’s largest cryptocurrency, had a roller-coaster ride in trading in May. Its value fell by more than 30 percent to nearly $30,000, the lowest level since late January. However, it recovered to around $39,000 on May 26 after Tesla CEO Elon Musk said on May 24 that he was having active discussions with bitcoin miners regarding the sustainability of the digital coin.
Even with cryptocurrency prices remaining extremely volatile, financial institutions have been launching new cryptoproducts and services, according to a research report from Goldman Sachs.