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China's bitcoin crackdown sends prices tumbling

China’s central bank ordered financial institutions to step up restrictions against virtual currencies Monday. File Photo by Stephen Shaver/UPI
China’s central bank ordered financial institutions to step up restrictions against virtual currencies Monday. File Photo by Stephen Shaver/UPI | License Photo

June 21 (UPI) -- China ordered the shutdown of nearly all domestic bitcoin mining operations, as concerns rise about its environmental impact, according to state media.

State tabloid Global Times reported 26 bitcoin mining centers in southwestern Sichuan province that represent more than 90% of China's mining capacity were shuttered starting Friday.

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News of the crackdown sent bitcoin prices falling to a two-week low Monday to $31,760, CNBC reported. Prices were below $32,000 for the first time since June 8, the report said.

Provincial authorities ordered the shutdown after state media suggested bitcoin miners were migrating to China's southwest to take advantage of the availability of hydropower during the rainy season. Miners have been banned from activities in China's Inner Mongolia and Yunnan Province.

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Bitcoin's network is decentralized and blockchain is used so all network users retain collective control. Crypto miners solve math puzzles using special computers to validate bitcoin transactions. The best problem solvers are rewarded with bitcoin, but the process consumes vast amounts of electricity.

China has cracked down previously on bitcoin mining and transactions. The effects of a crackdown may have only a short-term impact, however.

"China often does this," said Charles Hayter, chief executive of crypto data firm CryptoCompare, according to CNBC.

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"When China sneezes, bitcoin catches a cold. But this flexing of regulatory muscle is often just that -- in the past eight years, this story has risen its head at least three times."

Other measures Monday have contributed to the fall in the value of bitcoin.

The People's Bank of China said it has ordered financial institutions, including Ant Group Co.'s Alipay, to step up restrictions on cryptocurrency trading, the Wall Street Journal reported Monday.

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Chinese police also have arrested more than a thousand people suspected of using crypto currencies to launder money, according to the report.

China's central bank may have a limited impact on virtual currencies, however.

"This will make it harder [for people to trade], but it won't be able to completely shut down this type of transactions," said Chen Shujin, an analyst at Jefferies.

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