China was one of the earliest countries to enthusiastically adopt Bitcoin and crypto. In 2013, a Chinese charity began accepting donations in Bitcoin. Soon, a flood of businesses began accepting Bitcoin and other cryptocurrencies as payment. Baidu – the Chinese search engine giant – was for a period accepting Bitcoin for its website security service offerings. In fact, in 2014 Bitcoin traded more against the Chinese yuan than any other currency.
This buzz of activity attracted miners, who set up shop in areas with cheap energy. Xinjiang province – home of the Uyghurs – alone once provided roughly 35% of Bitcoin’s total hash rate. Though, as of June, China banned crypto mining and Xinjiang no longer does any mining.
Take a look at the Mining in China section below to understand the factors that once allowed Chinese miners to claim over 65% of the hash rate.
One major driver of Bitcoin’s popularity in China is the widespread desire to remove its capital from the control of the CCP and integrate it into the worldwide economy. Wealthy Chinese people are highly motivated to seek out overseas investment opportunities and means of exchanging their Yuan (CNY) for U.S. dollars and other “safe” currencies. The yuan is subject to strict capital controls which make moving money in and out of the country difficult.
China has not taken a favorable view of Bitcoin. In 2017, the Chinese government instated an official ban on all cryptocurrency trading and investing, which was followed the next year by a proclamation that all crypto-related WeChat and social media profiles would be shut down. Bitcoin mining was strongly discouraged if not quite outlawed entirely. This was done with the stated goal of protecting investors from dangerously speculative trading products and scams like PlusToken.
This is part of the broader “blockchain, not Bitcoin” approach that the Chinese state has taken. It seems that the government sees value in blockchain technology, and indeed may be the first to issue their own Central Bank Digital Currency (CBDC), but views Bitcoin as an anti-establishment threat. China’s recent trials of a CBDC are at a more advanced stage than any other country’s. China sees value in blockchain technology and is aiming to be at the vanguard of its development.
Delivering an immediate boost to the Chinese Bitcoin community (and BTC’s price as well), in October 2019 President XI Jinping stated support for blockchain technology research. One blockchain developer whose family had urged him to quit after the rumblings and ICO ban in 2017 said that he was relieved to “no longer feel on tenterhooks when coding.”
So does this mean that crypto has entered a new phase in China?
Not quite yet. According to Changelly’s roundup of Bitcoin in China, “Bitcoin and other international decentralized cryptocurrencies are illegal to store and trade for individuals and any corporate entities.” This is the letter of the law, though it is not always strictly enforced. Many people decide to take the risk and use VPNs to bypass restrictions and utilize foreign exchanges.
That said, China has enforced major changes in the crypto sector. In June of 2021, China issued a memo ordering all miners to shut down their operations immediately.
A Google translation of the memo gives us a good idea of what it says:
A prudent monetary policy must be flexible, precise, reasonable, and appropriate…The second [goal] is to resolutely prevent and control financial risks…[by cracking] down on Bitcoin mining and trading behavior, and [to] resolutely prevent the transmission of individual risks to the social field.
Yet sometimes government intervention can have an opposite effect to the one desired. Mainland China’s tightening of its grip on Hong Kong has caused many residents to turn to crypto to safeguard their money. Hong Kong residents are increasingly turning to Bitcoin and stablecoins to preserve their wealth in light of the newly imposed capital controls by Beijing.
Roughly 20% of capital flows into Bitcoin, with the rest going into stablecoins, mostly Tether (USDT).
While the lives of miners may be difficult, local exchanges are forced to comply with last-minute regulations, and individuals have to take into account the legal gray area in which they operate, there is undeniable interest and engagement with Bitcoin in China.
Since 2009, Bitcoin has provided an increasingly viable alternative to the fiat currency system, and as long as there that system continues to be surveilled and controlled by third parties, there will be demand for decentralized alternatives.