Bitcoin trading volumes are continuing to plummet in response to pressures from a cryptocurrency crackdown in China, the location of most of the world’s bitcoin mining capacity, amid a bearish market for the most widely used cryptocurrency.
Daily trading averages fell to US$34.8 billion in the first eight days of June, a sharp decline from the record US$67 billion last month and the lowest for any month since last December according to CoinDesk Research.
The average bitcoin transaction fee – the amount paid to miners who process transactions – also fell to US$4.38 over the weekend, a 93 per cent decline from its peak of US$62.77 in April, according to Cointelegraph.
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China bitcoin: Inner Mongolia reinforces Beijing’s ban on mining with strict rules as more operators prepare to relocate offshore
Bitcoin “mines” are large computer server arrays used for verifying transactions on the bitcoin blockchain, which is achieved by completing complex calculations. To incentivise miners to contribute to decentralised network, they are rewarded with bitcoins for verifying transactions and can charge a transaction fee. The fee is usually affected by supply and demand, along with the size of the transaction and the number of transactions a coin has already gone through.
“Trading volume is usually smaller when it’s a bear market, primarily due to regulatory changes,” said Simons Chen, executive director of investment and trading at Hong Kong-based cryptocurrency finance firm Babel Finance.
With the crackdown in China showing no signs of easing up soon, bitcoin prices have plunged by more than 40 per cent from their all-time high of more than US$62,000 in April.
The latest crackdown kicked off in May, when the financial body of the State Council, China’s cabinet, issued an alert on the matter, citing financial risks. Liu He, the top economic adviser to Chinese President Xi Jinping, said that the government will “crack down on bitcoin mining and trading behaviour, and resolutely prevent the transfer of individual risks to society”.
Chen said that the signal from the meeting “has scared away some traders”.
Following the meeting, several bitcoin mining hubs have taken action. Inner Mongolia, Xinjiang and Qinghai have issued notices to shut down part or all of the mines in their regions. Sichuan province, which relies on cleaner hydropower, held a meeting on bitcoin mining earlier this month, but it did not come to any conclusions about possible policy changes.
China accounts for 65 per cent of the global bitcoin hash rate, a measure of the network’s computational power, according to the Cambridge Bitcoin Electricity Consumption Index. Xinjiang alone accounts for nearly 36 per cent of it, with Sichuan and Inner Mongolia coming in second and third, respectively. Qinghai ranks ninth, accounting for 0.26 per cent of the hash rate.
Search engine Baidu and social network Weibo have been censoring search results for major cryptocurrency exchanges since Wednesday. Last week, Weibo banned several influential accounts related to cryptocurrency, saying the accounts had violated Weibo guidelines and “relevant laws and regulations”.
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