Since 2018, the number of countries and jurisdictions that have implicitly or explicitly banned cryptocurrencies has more than doubled!
According to a report by the law library of congress published in November 2021, a total of 9 countries have completely banned digital currencies. China, Qatar, Morocco, Egypt, Iraq, Oman, Algeria, Bangladesh, Tunisia and most recently Kosovo have all put in place measures to ban cryptocurrencies. These bans have either been instituted explicitly as was the case in China or implicitly through crypto banking restrictions or banning of crypto exchanges. A myriad of reasons ranging from the use of crypto for illicit trade, tax evasion, destabilization of financial systems and environmental concerns have been quoted.
The ultimate blackswan event
I believe the biggest test yet of the staying power of bitcoin and crypto in general came during the spring 2021. In May 2021 China prohibited financial institutions from engaging in any crypto transactions. This was shortly followed by a ban on domestic crypto mining in June. Finally in September China moved to outrightly ban cryptocurrencies. As it was expected, each of these regulatory clamp downs triggered widespread selloff in the crypto space as widespread uncertainty caused investors to run for the exit. Chinese officials quoted environmental concerns, fraud and money laundering as the reasons for the bans. As much as this might have been the case, the second largest world economy is notorious for its strict capital controls. It was pretty clear that an anonymous, decentralized ledger system could pose serious constraints on the government's oversight of the economy.
Before these bans were instituted, China could have inarguably been termed as the crypto capital of the world. It was estimated that China‘s share of the global bitcoin hashrate was 65% to 75%. The hashrate is a key metric for crypto mining, it measures the computing power per second used when mining. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack. Data compiled by the University of Cambridge’s Centre for Alternative Finance shows that China went from controlling up to two-thirds of all Bitcoin mining in the world in April to not contributing to the industry at all as of July 2021.
As the top spot got vacated, it became a free for all as other jurisdictions scrambled to pick up the slack. Most China based miners either relocated to Kazakhstan, Russia, Canada and some US states or sold off their mining equipment.
Of all the beneficiaries, the most unlikely beneficiary had to be the US. Despite drumming the loudest about crypto mining energy consumption, the US has taken up a majority of the global share of hashrate surrendered by China based miners. This visualisation by visual capital exemplifies the biggest beneficiaries of the Chinese crypto mining crackdown.
The Bounceback
