Though the process has been ongoing for a relatively long time – and even the most outspoken opponents of the crypto market have been getting involved, including during the ‘crypto winter’ – 2024 has been the year of institutional cryptocurrency adoption.
The trend has been most evident and extensive with regard to Bitcoin (BTC), particularly since the approval of the U.S.’ first-ever spot BTC exchange-traded funds (ETFs).
Indeed, these financial instruments have seen significant institutional interest in recent months, with investors of all stripes joining the action.
One country that has excluded itself from both the trend and its fruits – and which has, arguably, made it difficult for itself to catch up – is China.
In 2021, the government of the People’s Republic banned BTC mining within its borders, which—though it has failed to fully eliminate such activity—has significantly damaged the once-booming sector.
The ban quickly gutted the Chinese Bitcoin mining sector, which—after already declining in global market share between 2019 and 2021—fell to 0% at one point in 2021, per the data made available through the Cambridge Bitcoin Electricity Consumption Index (CBECI).
Though the figure rose somewhat with activity in China – mostly considered to consist of underground operations – standing close to 21%, it still marks a substantial drop from the final pre-ban mining market share of 46%.
China unlikely to be able to catch up
Finally, even if the Chinese government assesses in 2024 that its decision was a mistake given the recent mainstream legitimization of Bitcoin, it would likely have a hard time attempting to regain ground.
One of the biggest reasons behind the likely issues is the latest BTC halving that took place in April 2024. The event made it twice as difficult to obtain the coin, with JPMorgan (NYSE: JPM) recently revising the estimated cost of mining a single Bitcoin to $45,000.
The concerns associated with the increased mining difficulty are perhaps most evident in the stock prices of major BTC miners – such as Marathon Digital (NASDAQ: MARA) and Riot Platforms (NASDAQ: RIOT) – which have declined since the start of the year despite the crypto market undergoing a large and broad rally.
Nonetheless, with Bitcoin hitting new all-time highs (ATH) in general in March, and, when denominated in yuan, in February, and with other important metrics such as the hashrate also being at their ATH, it is possible China will seek to reverse the ban.
Why China may not regard the ban as a mistake
Ultimately, while it is possible that the recent trends could force the Chinese government to reevaluate its ban, it is far from guaranteed, given that some of the primary stated reasons behind the decision are largely still relevant.
Though Bitcoin has been trading with relatively little volatility in recent years – at least by crypto market standards – it is doubtful whether the stability has already proven enough to negate the original argument of preserving financial stability.
Indeed, China expressed its concerns that Bitcoin might collapse to $0 as recently as 2022 – shortly after the ‘crypto winter’ started in May of the same year.
Similarly, though China has been working on increasing its reliance on green energy, the supply share has risen by only about 2% from 27.73% in 2021 to 29.14% in 2023, meaning that it is doubtful much has changed regarding the environmental argument.
Finally, the last major reason for the ban—concerns over capital flight—has arguably only increased given the global economy’s increased exposure to crypto markets and the higher rates of cryptocurrency adoption.
On the other hand, there have been some developments in China that hint toward a mode dovish stance on crypto, such as a conference in Nanjing that took place in late April and that saw a number of scholars agree on the need to afford digital assets a more concrete legal status in the country.
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