Babbitt Column | Where will the virtual currency mining industry go? A brief review of the new regulations of the National Development and Reform Commission

According to the author: The Development and Reform Commission's "Industrial Structure Adjustment Guidance Catalogue (2019, Consultation Draft)" was introduced today. Does it metaphorize the fate of the virtual currency mining industry in China, and where will the virtual currency mining industry go?

Today, the National Development and Reform Commission issued the "Industrial Structure Adjustment Guidance Catalogue (2019, Draft for Soliciting Opinions)" ("Consultation Draft"), publicly soliciting opinions from the public, and intends to guide the "Industrial Structure Adjustment Guidance Catalogue (2011) This) is further revised. The time for public comment is from April 8, 2019 to May 7, 2019. ()

It is worthy of attention in the blockchain industry that the virtual currency “mining” activity (the production process of virtual currency such as Bitcoin) is listed in the third category of “Exemption Class” in the “Draft for Comment”. Article 18, paragraph 6, under Craft Equipment. According to the comments in the third category of the "Draft for Comment", since the elimination period or the phase-out plan is not indicated after the item, it indicates that the mining activities of the virtual currency have been explicitly eliminated or immediately eliminated.

First, the introduction of the new regulations

The "Draft for Comment" is in accordance with the "Opinions of the State Council on the Implementation of the Negative List of Market Access System" issued by the State Council in October 2015 ("Opinions") and the "State Council issued in July 2018" on the issue of winning and defending the blue sky. The requirements and deployment of the Notice of the Three-Year Action Plan were introduced and consisted of three categories: encouraged, restricted, and eliminated. Among them, the elimination categories are mainly backward processes, technologies, equipment and products that do not meet the requirements of relevant laws and regulations, do not have safe production conditions, seriously waste resources, pollute the environment, and need to be eliminated.

According to the "Opinions", China will implement a market entry negative list system. The list will include the prohibition of access and restricted access categories, and is applicable to investment behaviors of various market entities based on voluntary initial investment, expansion of investment, merger and acquisition investment, and Other market entry behaviors. For the prohibition of entry, the market entity shall not enter, the administrative organ shall not approve or approve, and may not handle relevant formalities. The negative list of market access is applicable to all types of market entities and is a unified requirement for market access management.

According to the spirit of the "Opinions" and other regulations, on December 25, 2018, the National Development and Reform Commission and the Ministry of Commerce, in conjunction with previous experience in piloting relevant places, issued a "Negative List of Market Access" uniformly implemented nationwide ("List 》”). The “List” directly includes the “Retirement Projects” and “Restricted Projects” in the “Industrial Structure Adjustment Guidance Catalogue (2011)”. At the same time, the National Development and Reform Commission has taken the lead in launching the “Industrial Structure Adjustment Guidance Catalogue (2011). After the completion of the revision of the "This", the "List" will be directly linked to the latest version of the "Industrial Structure Adjustment Guidance Catalogue".

According to the "List", there are 4 items that are prohibited by market participants from entering, including:

(1) Prohibited regulations that are clearly established and related to market access, such as laws, regulations, and decisions of the State Council;

(2) Products, technologies, processes, equipment and practices that are explicitly eliminated and restricted by the national industrial policy;

(3) It is forbidden to carry out financial related business activities in violation of regulations;

(4) It is forbidden to carry out Internet-related business activities in violation of regulations.

According to the “List”, the above item (2) refers to the phase-out projects in the “Industrial Structure Adjustment Guidance Catalogue”, which prohibit investment (whether initial investment, expansion of investment, M&A investment), market The main body shall not enter, the administrative organ shall not approve or approve, and may not go through relevant formalities.

In addition, the List has already mentioned some of the management measures of the Industrial Structure Adjustment Guidance Catalogue (2011), which are listed in the Annex to the List. However, the words “virtual currency” or “mining” were not mentioned in the revised measures attached to the “Industrial Structure Adjustment Guidance Catalogue” in the “List”. In the newly released "Draft for Comment", the National Development and Reform Commission not only added virtual currency "mining" activities in the elimination category, but also stated that the nature of these activities is the production process of virtual currency such as Bitcoin.

Second, the main impact of the implementation of the new regulations

1. Indicates that the policy related to virtual currency is still tightening

The "Draft for Comment" is not the first time for the supervisory layer to supervise the mining activities of virtual currency. In January 2018, the Office of the Leading Group for the Special Remediation of Internet Financial Risks issued documents to all localities, requesting active guidance of enterprises within its jurisdiction. Orderly exited the Bitcoin mining business and regularly reported the progress of the work. Since then, some local governments (such as Xinjiang, Sichuan, Inner Mongolia, etc.) have introduced and adopted power cuts, shutting down mines, and refusing to add new mines. Various opinions and measures to limit virtual currency mining activities.

However, the "Draft for Comment" is not a low-level, partial, or even non-public initiative, but rises to the height of the national industrial policy, and is far higher than the previous level in terms of regulations, effectiveness and importance. The regulations of any local government explain the negative attitude of the state to the virtual currency production process in the top policy orientation and system design. It is intended to use the serious waste of resources and environmental pollution as an entry point, and fundamentally negate the virtual currency in the country. Legitimacy and possibilities arising from mining. The digitalization, networking and intelligence of the manufacturing industry advocated by the state may be related to the blockchain, but it has nothing to do with virtual currency.

2. Will have a negative impact on the mining industry of virtual currency

Although the new regulation is still in the "Draft for Comment", it has not yet officially entered into force, but once the "virtual currency mining activity" is written into the "elimination class" of the officially issued "Industrial Structure Adjustment Guidance Catalogue", mining of domestic virtual currency The impact of the industry is undoubtedly huge and far-reaching. For relevant market players, the introduction of new regulations may mean:

(1) If it is a new entrant in the industry: Whether the market entity is a domestic-funded enterprise or a foreign-invested enterprise, whether the virtual currency generated by mining is bitcoin or others, and whether the mining mode is PoW or PoS, is it traditional mining or Cloud mining, as long as its activities involve the production process of virtual currency mining, that may be regarded as prohibited, market entities are not allowed to enter, the administrative organs will not approve, approve, and may not go through the relevant formalities.

(2) In the case of industry stock participants: For enterprises that are engaged in mining, due to industrial policy restrictions, a better situation is to slowly withdraw under the guidance of the policy; a bad situation may be across the board, requiring immediate elimination (such as As mentioned above, since the entry period or the phase-out plan is not indicated after the entry, there is a possibility of being eliminated immediately according to regulations. Whether it is a slow withdrawal or an immediate elimination, in this case, the biggest problem for stock participants is how to deal with this life and death problem, rather than how to achieve further development expansion, even domestic or overseas listing. (Enterprises that are not in line with national policy are not only difficult to accept by domestic securities regulators, but also difficult to accept by overseas securities regulators. The road to offshore listings of mining machine manufacturers and virtual currency exchanges is an example. ), going out to sea may become a last resort choice for more domestic mining companies.

(3) Investors: At this time, what may need to be considered is no longer how to invest in domestic virtual currency mining companies (because whether it is intended to enter through capital increase or equity mergers and acquisitions, the new rules may not be How the regulatory authorities allow it, but how to achieve the exit as soon as possible. It is imperative that you take a look at the investment agreement you signed earlier and take a closer look. Whether the policy changes are agreed in the contract terms can also trigger the exit.

(4) For all industry stakeholders: If you do not want or want to see the virtual currency mining industry disappearing in the domestic history so quickly, the period of public consultation for the "Draft for Comment" is the need to seize and The time window for comments, but whether the opinions will be adopted by the regulatory level is difficult to predict.

Author: Zhang Ling, a partner at law firm Han

Disclaimer: This article only represents the author's personal opinion and does not represent the opinions of the organization. The contents of this article do not constitute legal advice and investment advice. To reprint or cite any of the content in this article, please include the author's name.