Chinese crackdown on cryptos cleansing risk from economy

China, which accounts for over half of global Bitcoin production, is now cracking down harder on cryptocurrencies.China’s multiyear assault on the industry reached its peak last Friday with the central bank designating crypto-related transactions as illicit financial activity.The country’s economic planning agency also sought to root out crypto mining to meet carbon goals.There’s quite a bit of history here.In the first phase of Bitcoin’s rise since its 2009 inception, China was the base for the biggest miners and exchanges as well as a horde of active speculators.There were also signs people used digital currencies to skirt a cap on taking money out of the country, especially when the yuan was depreciating.Before China outlawed crypto exchanges in 2017, local investors held an estimated 7% of the world’s Bitcoin and made up roughly 80% of trading, according to state media.As of now, any remaining activity is seen hard to trace as it will probably be conducted via virtual private networks that obscure the user’s location.Across the world, the regulatory screws are being tightened on cryptos with the US threatening industry players with lawsuits or cease-and-desist orders.But China’s stance is unequivocally hardline.It also complements the Communist Party’s bid to bring key industries to heel, from online gaming and tutoring to high-frequency trading.At the same time, the country has remained supportive of the blockchain technology that underpins the crypto world, as well as — naturally — its own digital yuan, which has been enthusiastically promoted by the People’s Bank of China.China launched tests for a digital yuan in March.The aim is to allow Beijing to conduct transactions in its own currency around the world, reducing dependency on the mighty dollar.The cryptocurrency market has for long been used to frequent and extreme speculative frenzy with Bitcoin standing as a perfect measure of the wild ride.Here are some higher stakes involved in the speculative plays.Over half of the $410bn spent on acquiring current Bitcoin holdings occurred in the past 12 months, according to a report from blockchain analysis firm Chainalysis.About $110bn of that was spent on buying it at an average cost of less than $36,000 per coin.It would mean the vast majority of investments aren’t making a profit unless the coin trades at $36,000 or higher, according to a Bloomberg report.Bitcoin is held by relatively few people, meaning that price swings can be magnified during low-volume periods.While China has long expressed displeasure with the anonymity provided the crypto tokens, cleansing risk from financial markets has also been a government mantra for years.It’s evidenced in the crackdown on fintech giants including Jack Ma’s Ant Group.Cryptocurrencies can provide a way to move money out of China, potentially adding to outflows that officials have aggressively set about stemming.As for mining, local governments have grown wary of the industry’s huge energy consumption — more annually than the entire country of the Netherlands — at a time the government has pledged to achieve carbon neutrality by 2060.Amid an intensifying Chinese regulatory assault, the see-saw volatility in the crypto markets has dented the narrative that virtual currencies are a dependable store of value.