Crackdown on bitcoin mining: not only because of coal – Winston Wenyan Ma

 

Winston Wenyan Ma

Provincial governments in Sichuan, Xinjiang, Inner Mongolia, and Yunnan have been cracking down on bitcoin mining, but it is not alone because of the usage of coal to generate cheap electricity, says strategic advisor Winston Wenyan Ma to Reuters.

Reuters:

The notice ordered state electricity companies in Sichuan to conduct inspections, make corrections and report their results by Friday. They are to immediately stop supplying electricity to crypto mining projects they have detected.

The authorities urged local governments in Sichuan to start combing for crypto mining projects and shut them down.

Other regional mining centres, including Xinjiang, Inner Mongolia and Yunnan, have also ordered crackdowns on Bitcoin mining.

Friday’s notice appears to indicate that Beijing’s displeasure with cryptocurrency mining extends beyond cases where it uses electricity generated by burning coal.

“Renewable power does not help,” said adjunct professor Winston Ma of NYU School of Law.

“The four largest mining regions – Inner Mongolia, Xinjiang, Yunnan and Sichuan – have implemented similar crackdown measures, even though mining in the latter two are mostly based on hydropower, whereas the first two are on coal,” he said.

More in Reuters.

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Governments will outlaw crypto currencies when they become too powerful – Jim Rogers

 

Jim Rogers

When cryptocurrencies like bitcoins become too powerful, governments will simply outlaw them, says senior investor Jim Rogers to Kitco. They will not accept competition for their currencies.

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Risk and opportunities of the bitcoin - Mark Schaub

Chinese authorities have started to regulate the usage of the bitcoin. That is not necessarily a bad thing, writes Shanghai-based lawyer Mark Schaub at the website of his law firm. "Regulation should be seen as an opportunity, too. More stringent rules translate to lower investment risk and increased legitimacy."

Mark Schaub:

The opportunities with Bitcoin remain ample, as is demonstrated by its sustained growth. (Some of the most optimistic commentators have stated the value will rise above 6,000 USD.[18]) This is occurring alongside the continuous creation of new and derived cryptocurrencies, as was recently demonstrated by Bitcoin’s hard fork, which created ‘Bitcoin Cash’. Moreover, developers are continuing to find novel uses for blockchain technology as a whole. 

Regulation should be seen as an opportunity, too. More stringent rules translate to lower investment risk and increased legitimacy. Investors in cryptocurrencies, particularly ICO tokens, will likely be afforded some level of legal protection on their investment in certain jurisdictions. Start-ups, too, stand to gain from regulation as a means to build trust amongst an increasingly skeptical pool of investors. Indeed, the perceived legitimacy of the blockchain system as a whole seems to be on the rise, earning clout with institutions as large as the Bank of England, which signed up to participate in the Hyperledger project in March.[19] 

Regulation should also be seen as a way to stabilize the extreme volatility of the currency by making it harder for speculators to instantaneously purchase and liquidate Bitcoin on a whim. This will also open the door to more risk-averse investors. 

On top of these, there are opportunities specific to China, which looks poised to continue its role as a global hub for Bitcoin. Between Hong Kong and the mainland, it hosts some of the world’s most established Bitcoin exchanges[20] as well as significant infrastructure for Bitcoin mining, which generates 70% of the world’s Bitcoins.[21] Moreover, the trend of China-based cryptocurrency startups is only going to increase, as the government continues to incentivise a burgeoning ‘Silicon Valley in China’.[22] Recommendations have also been made by PBOC officials to foster a ‘regulatory sandbox’ for blockchain innovation. That is, an ICO-inclusive market with minimal intervention bounded by some basic regulations such as Singapore-style KYC rules.[23]

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Cryptocurrencies continue to bring a variety of risks to investors. The sheer variety of potential uses for blockchain technology is a double-edged sword. Increasingly, businesses are turning to blockchain as a panacea to a variety of database issues, or as a part of a marketing strategy to appear more modern. In reality, blockchain technology is a system with high energy costs and a narrow scope of uses.[24] Lacking the need for a single database with multiple writers and no trusted intermediary, many companies are better off employing a traditional relational database. Investors should beware of start-ups touting the use of blockchain where, in fact, it adds cost and does not increase efficiency. 

Furthermore, companies looking to maintain environmentally-friendly policies should also be aware of the significant energy costs of maintaining a blockchain system, as well as increasing public awareness of it. 

The volatility of Bitcoin and other, smaller cryptocurrencies continues to be a risk. Even with regulation, the digital nature of cryptocurrencies means they will also be more liquid than physical currencies or ‘real’ assets. 

Also, the new rules concerning Bitcoin stand to limit its uses. One focus of regulation, particularly in the Unites States, appears to be cryptocurrency products that seek to incorporate elements of traditional financial assets. These include the DAO token, which aimed to be a cryptocurrency venture capital fund, as well as the attempt by Winklevoss Capital to list an Exchange Traded Fund on the NYSE that tracked the price of Bitcoin, which was blocked by the SEC. Investors should be wary of these. 

Considering risks unique to China, some commentators have suggested that the newly-created ‘Bitcoin Cash’ is an attempt to create a Chinese version of Bitcoin. The larger block sizes of Bitcoin Cash pose a significant advantage to industrial-scale mining operations. Indeed, Jihan Wu, the creator of Bitcoin Cash is also the manufacturer of the ‘AntMiner’ mining device. At any rate, a pivot by the Chinese market to Bitcoin Cash may result in the loss of a significant driving factor for the growth of Bitcoin. 

Moreover, Bitcoin in China remains largely unregulated, at least for the time being. The nearly-catastrophic move by Huobi and OKCoin to invest idle client funds into wealth management products should be closely considered as an example of the potential losses to be incurred in the Chinese Bitcoin market. 

Regulation in China has started, however, and will continue. This poses risks for investors. For instance, Bitcoin was once seen as a potential “golden ticket” to bypass China’s increasingly harsh capital controls on getting money out of the country.[25] Following the PBOC investigation earlier this year, using Bitcoin as a means of repatriating funds will be throttled, at best. Users and investors in China must consider the very high possibility of the PBOC imposing further regulations on cryptocurrencies, both expected and otherwise. Financial laws in China are strict, and penalties are harsh. Another factor that may affect Bitcoin investors is further restriction on Bitcoin trading that may be imposed by the Chinese regulators. During the NPC & CPPCC in 2017, Mr. Zhou Xuedong, the Director of Business Administration of PBOC, proposed a bill for establishing a negative list with respect to the business activities that should not be conducted by a Bitcoin trading platform.[26] Furthermore, the Legal Affairs Office of the State Council issued the draft regulation on the penalty of illegal fund-raising activities, stating in its Article 15 that the department dealing with illegal fundraising shall conduct an illegal fundraising administrative investigation when any such acts are found and explicitly mentioning virtual currencies in this draft regulation. As such, there is the risk that issuing or trading in Bitcoins (particularly relevant to the ICO market) may be deemed and sanctioned as illegal fundraising.

More at the China Law Insight.

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BitMex helps Chinese investors to go global - William Bao Bean

William Bao Bean

Former Citi-group banker Arthur Hayes started BitMex, a bitcoin exchange. Bound to be a success, says VC and fintech expert William Bao Bean to Bloomberg, as Chinese are looking for ways to invest their capital outside China, where growth it slowing down.

Bloomberg:

Last month, BitMEX took first place among 475 startups at a competition in Singapore hosted by the technology blog Tech in Asia. Hayes and his partners are now seeking to raise $2 million to expand the financial products they can offer. They want a partner who can help distribute their products to retail Chinese clients or an established derivatives exchange to give them access to institutional traders. “Profitability gives us flexibility in who and how we take funding,” said Hays, adding they have turned down offers. 

William Bao Bean, a China venture investor, said BitMEX’s timing is fortuitous. Investors in the country are looking to diversify abroad as the economy slows and domestic investments become more unpredictable. “There are many people who want to see their money outside of China right now,” said Bean, a former Deutsche Bank investment banker who runs a program for startups called Chinaccelerator.

More in Bloomberg.

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Why BitMEX is a winner - William Bao Bean

William Bao Bean

Last month the financial startup BitMEX won the first place in Singapore among 475 other startups. BitMEX offers traders an account, allowing them to trade in bitcoins. A winning proposition, tells ex-banker William Bao Bean to Bloomberg, as many try to siphon capital out of China.

Bloomberg:

William Bao Bean, a China venture investor, said BitMEX’s timing is fortuitous. Investors in the country are looking to diversify abroad as the economy slows and domestic investments become more unpredictable. “There are many people who want to see their money outside of China right now,” said Bean, a former Deutsche Bank investment banker who runs a program for startups called Chinaccelerator.

More in Bloomberg.

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Earlier we discussed with William Bao Bean how traditional lending is giving way to crowdfunding

Bitcoin: still going strong - Marc van der Chijs

+Marc van der Chijs 

In China the financial authorities have come close to a ban of the Bitcoin, and the news in general has been negative. But China entrepreneur and Bitcoin enthusiast Marc van de Chijs explains on his weblog why the crypto-currency is likely to keep on shaking the financial markets. 

Marc van der Chijs:

Now that initial regulations are in place I think a new era of Bitcoin has started. The past 4 months have seen a gradual decline in Bitcoin prices, mainly due to the potential ban of Bitcoin in China, but also due to the non-stop flow of negative news about Bitcoin. A lot of the early entrepreneurs turned out to be frauds, crooks or criminals, and even some of the newer ones seem to be doing the same thing (unfortunately the CEO of the Cyprus Bitcoin bank NEO BEE seems to be the next example). 

Most of the decline in price is due to the fact that speculators left the market and that the Chinese BTC holders are selling their coins. People see the news, don’t fully understand it, get scared and decide to sell their holdings. Typical behavior in a market crash. 

Bitcoin has shown that it is quite resilient. After the Mt. Gox disaster many people predicted the price would go back to mid-2013 levels ($100), but that did not happen. Each time the price dropped others started buying. That happened for a while at the $400 support level, but that was broken today. Nobody knows what will happen over the next days (especially China news can give BTC another dip), but because there is a lot of smart money waiting to buy in I think it might be back above $400 sooner rather than later.

More at Marc van der Chijs´weblog.

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China´s largest Bitcoin exchange raises US$10m in funding – Marc van der Chijs

Marc van der Chijs

OKCoin, claiming to be China´s largest Bitcoin exchange, got a first round of VC funding of US$10 million, writes VC Marc van der Chijs in Coindesk.com. Target: growth outside China.

Marc van der Chijs:

The investment round was led by Ceyuan, one of China’s earliest venture capital firms, followed by Mandra Capital, VenturesLab and numerous high-profile angel investors. 

Despite the nation’s recent crackdown on cryptocurrencies, it seems Chinese venture capitalists are still bullish on bitcoin exchanges and the currency itself. 

Back in November 2013, the focus of the bitcoin community was on China – the world’s hub for bitcoin trading. At that time, BTC China was the biggest exchange in the world, having managed to raise a $5m Series A funding round from Lightspeed Venture Partners (Snapchat, Nest). There were even rumours that a bigger round was in the works for the young company. 

However, things change quickly. After the Chinese government began regulating bitcoin in December, trade volume plummeted and the world’s top exchange was no longer Chinese. 

Local exchanges came up with creative solutions for customers to continue to buy and sell bitcoin, and players like Huobi and OKCoin claimed to pass BTC China in their daily trade volume, although these figures have been the subject of much dispute. 

OKCoin has grown rapidly over the past few weeks and is now the biggest Chinese exchange, according to its CEO Star Xu. He claims the exchange’s current daily trade volume is approximately 50,000 bitcoins per day. 

Interestingly, on top of that, the exchange allegedly trades 5 million litecoins per day. The company claims that at its peak it reached over 300,000 bitcoin and 13 million litecoin trades.

More in Coindesk.com

Marc van der Chijs is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form. 

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Growing pains of China´s shadow banking – Michael Justin Lee

Michael Justin Lee

At the recent World Economic Forum in Davos, Switzerland, shadow banking loomed as a threat over China´s economic future. Financial analyst Michael Justin Lee does not agree, he writes in the ChinaUSFocus. Yes, the country has growing pains, but is not on the way to collapse.

Michael Justin Lee:

My agreement does not extend to the (Davos) conclusion. The majority conclusion seems to be that China will implode from the weight of the shadow banking system’s problems, taking down first Asia with it, and then the rest of the world. Even after making full allowance for probable hyperbole at such a media event, I think the Davos grandees went too far. The worst of the possible outcomes can be ameliorated with simple openness and transparency and I think the Chinese know this. 

Market practitioners know that opacity and evasiveness about an economic problem makes it far worse. That’s a big no-no. Without open resources, the market has no chance to evaluate and discount the problem and therefore must assume the worst. 

China’s shadow banking problem has a bit of parallel with another topic discussed in Davos, Bitcoin. Bitcoin is a private market currency. It is not backed by the good faith and credit of the U.S. Treasury or of any other central bank. It is backed only by the trust that the market accords it. 

Actually, Bitcoin’s business model is not entirely new. Credit cards are also private market currencies. They are accepted for purchase because buying and selling parties trust their efficacy. The eventual success or failure of Bitcoin ultimately comes down to whether enough parties trust it, that is, accept it as a medium of exchange. The major credit card companies have earned that trust and therefore they are commonly accepted as currency despite not having been created by any sovereign authority. 

The same goes for China’s shadow banking system. Its success or failure also substantially depends on whether the market trusts it. There are other factors as well, but without the trust of the market, all of those other factors could not sustain it. Consider a run on a bank. If I distrust a bank, I would withdraw my money immediately. If everyone else does similarly, a bank run results even if the distrust is unfounded. 

China needs to earn trust that is clearly absent right now and the first step would be a simple transparent admission of the troubling situation. Sweeping problems under the rug accomplishes nothing. Hoping that overall economic growth accelerates to such extent as to trivialize the problem also accomplishes nothing. Less than twenty years ago, some other countries right in China’s backyard experienced very great pain from trying that. China must surely have been watching.

More in the ChinaUSFocus.

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Why China is not banning the bitcoin - Marc van der Chijs

+Marc van der Chijs 

Bitcoin expert and former serial entrepreneur in China Marc van der Chijs gives on his weblog his view on the latest developments of Bitcoin. Unlike the common opinion, Van der Chijs believes China is not trying to ban the bitcoin, but tries to contain the new financial feature. 

Marc van der Chijs:

China’s Bitcoin news over the past weeks has surprised me, but I think most people misinterpret the Chinese Bitcoin rules. The country is not trying to ban it, just wants to make sure speculation is not getting out of control until they better understand it. I would not be surprised it the country itself is actually buying Bitcoin. China wants to have more influence in the financial world, but it knows it can never control the USD. It’s unlikely that the RMB can take over this role because of a lack of trust in China, even though the Chinese currency is now the 2nd biggest currencies for trade finance. Bitcoin would be a great solution to gain more global financial influence and it would therefore make sense for China to be active in the Bitcoin market. 

Of course you could then come up with a conspiracy theory saying that China tried to reduce the price by not allowing banks and 3rd party payment providers to deal with Bitcoin, but I think that’s a bit too far fetched. However, I still wonder about one thing: who was buying Bitcoin on Chinese exchanges after the ban on payment providers to work with Bitcoin providers in China? Because nobody could fund their RBM accounts anymore and a lot of people were trying to sell, the price should have gone to zero. But that did not happen, after a major drop in price parties started buying again on the Chinese exchanges and the RMB/Bitcoin price started climbing up. But who was buying if no Chinese could add money to their accounts? Maybe I am overlooking something obvious here, but there is only one party I can think of…

More on Marc van der Chijs´weblog.

Marc van der Chijs is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.  

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