Is China making a mistake by banning cryptocurrencies?

There is little doubt, even in the minds of the most sceptical analysts, that China is already up there as one of the most powerful economic forces on the planet. Just as most of the latter half of the twentieth century was shaped by the competition between the United States and the Soviet Union, the foreseeable future looks set to revolve around the Sino-US rivalry.

Integral to China’s rise has been some visionary planning with the country enjoying the fruits of economic and production planning that were first envisioned decades ago. Take the Chinese dominance over rare earth metals, for example. The decision to focus on the gathering and utilization of these resources were taken decades ago and now, China has grown so dominant in the sector that even countries like Japan, which traditionally dominated the electronics manufacturing segment, are struggling to compete.

Yet, China may have made a giant misstep when they cracked down on cryptocurrencies in June. The country was the hub of global cryptocurrency mining and trading. A study estimated that China accounted for 46 per cent of the global bitcoin hashrate before the crackdown. Now that has dropped to zero. Instead, taking the lead as the world’s cryptocurrency hub is its competition US.

It’s not just that China has ceded ground to the USA. Its essential withdrawal from this race has enabled the springing up of other power centres across the world. Post the Chinese cracking down on cryptocurrencies, centres like Russia and Kazakhstan have risen as some of the top crypto mining locations in the world. 

As wary as world governments are of cryptocurrencies, there is little doubt that they will be integral to the future of the world economy. As is the case with individual users, it is extremely likely that countries that take a lead in these early years will be better placed in the future world financial order. By its stringent crackdown on crypto, China might just be endangering its position in this order.

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