With China’s crypto ban, where will the country’s “bitcoin refugees" go?

There are really only two criteria for these bitcoin refugees when looking for places to move to: relatively cheap electricity costs and relaxed regulations. Right now, the US has both of those things.

What’s the great crypto migration?

• Just like how human migrations happen because of catastrophes of famine, war or poverty, crypto is facing its own sort of catastrophe in the form of harsh regulation.

• Since May, China has been cracking down on the crypto industry as a whole, including companies that allow for trading crypto, holders of crypto as well as crypto miners.

• But on September 24, the People’s Bank of China (PBOC) officially announced that all services for trading, order matching, token issuance and derivatives for all cryptocurrencies would be strictly prohibited. This means anything you could possibly want to do with crypto is illegal.

• At one point, China was home to 70% of the world’s bitcoin mining power, and the reason China was this crypto mining hub was because of its relatively low electricity costs and cheaper tech hardware.

• So now, it means that the people in China running these bitcoin mining networks, dubbed “bitcoin refugees,” are looking to relocate.

Why did China ban crypto?

• Consider for a moment that national banks, like the PBOC, are pretty much worth the bargaining power of the currency they can control.

• Since those banks have control over the production and the regulation of that currency, the more people using that currency, the more people that country can control and influence economically.

• This is why the United States is so powerful. Right now, two-thirds of the world’s reserve currency is in the US dollar, so the Federal Reserve can essentially regulate two-thirds of the world’s finances.

• But when cryptocurrencies like bitcoin come into play, it really complicate things because not only are they not under the control of the PBOC, but they’re not under the control of any bank, anywhere.

• Since crypto is person to person and doesn’t go through any banks, this isn’t totally foolproof and will probably be hard to regulate entirely. But, China can crackdown on official businesses and people who publicly deal in bitcoin, so that’s what they’re trying to do.

• It’s “disrupting economic and financial order, breeding illegal and criminal activities such as gambling, illegal fund-raising, fraud, pyramid schemes, and money laundering, seriously endangering the safety of people’s property,” said the PBOC

Were there any other reasons?

• Another big reason is just how much energy crypto mining consumes.

• According to the University of Cambridge Bitcoin Electricity Consumption Index, the global bitcoin network uses up about 80 terawatt-hours of electricity per year, close to what Finland uses. Yes, the country.

• But China’s President Xi Jinping has ambitious climate goals, and crypto miners aren’t aligned and helping.

So, where are these companies going?

• There are really only two criteria for these “bitcoin refugees" when looking for places to move to: relatively cheap electricity costs and relaxed regulations. Right now, some US states have both of those things.

• But it’s not to say all of these companies are headed to the US. Some are staying a little bit closer to their geographical origins and settling in Kazakhstan or Russia.

• Between September 2019 and April 2021, the US’ share of the global bitcoin hash rate (meaning the proportion of all bitcoin mined) has more than quadrupled, going from 4.1% to 16.8%.

• There’s not much data available since April, but it’s safe to say that companies and miners have left China since then, and a portion of them have settled in the US to keep operating.

• For example, Kevin Pan, chief executive officer of Chinese cryptocurrency mining company Poolin, moved to Texas in May and was welcomed with open arms and an AR-15 rifle, which he said he might use to go “hunt hogs from a helicopter" one day.

• And it helps that Texas Governor Greg Abbott is a big supporter of crypto, tweeting in June of this year, “It’s happening! Texas will be the crypto leader."

What about the US’ crypto regulations?

• The US is currently pursuing regulation on stablecoins, a cryptocurrency tied to something a relatively stable asset, like gold or the US dollar.

• “We’ve got a lot of casinos here in the Wild West, and the poker chip is these stablecoins at the casino gaming tables,” said Securities and Exchange Commission (SEC) Chairman Gary Gensler.

• The idea is that stablecoins can allow people who hold crypto, which is prone to huge value fluctuations, to use it practically daily, like buying things.

• For regulators, their thinking is that if they need to regulate crypto, they can when it gets exchanged for real-world currency because that’s one of the easiest ways to track it.

Are there any problems?

• Yes. Stablecoins aren’t the only thing you can cash out, as crypto holders can essentially just turn to another coin to cash out.

• The US government can only really track so many different cryptocurrencies.

• And you have to remember, the main point of fiat currencies in the first place is to buy and sell things.

• With stablecoin, if someone were to buy a product or service, they wouldn’t be required to pay tax on it until they tried to exchange it for US currency.

What’s next?

• The stablecoin regulations are one of many being worked on right now. More ideas are on the table about how to regulate crypto in the US, and there are some kinks in the system that need to get worked out too.

• But what is obvious at this point is that there will be some regulation on cryptocurrencies down the road in the US, even if it isn’t quite as all-out as the ones seen in China.

• When that happens, the question will be where the crypto ecosystem will go.

• It’s possible that, if the regulations aren’t too lofty, miners and companies will decide to stay in the US.

• But if regulations do become too heavy, places in South America, such as El Salvador, have recently begun accepting bitcoin as legal tender and could be the next crypto hot spot.

• Ultimately, as always, only time will tell where crypto ends up.

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