Bitcoin Mining Is Big in China. Why Investors Should Worry.
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Bitcoin Mining Is Big in China. Why Investors Should Worry.

Why the digital currency’s dependence on China, specifically Xinjiang, is concerning.

By Isaac Stone Fish
Wed, Feb 24, 2021 1:27amGrey Clock 3 min

Critics of the nearly ubiquitous digital currency Bitcoin often focus on its environmental consequences. After Tesla announced recently that it had bought roughly US$1.5 billion in Bitcoin, sending the cryptocurrency’s value skyrocketing, sustainability investors decried the “level of carbon dioxide emissions generated from Bitcoin mining.” Certainly, “mining”—the energy-intensive process by which computers solve complex algorithmic problems to verify blockchain transactions, for which they’re rewarded in digital currency—is an undeniable environmental offender.

But there is another worrying aspect of Bitcoin, one that should make investors think twice about including it as part of an ethical investing strategy.

A large amount of new Bitcoin comes from Xinjiang, the region in northwest China where more than a million Uighur Muslims and other minorities have been imprisoned in concentration camps. According to the Cambridge Bitcoin Electricity Consumption Index, as of April 2020, China was responsible for 65% of all Bitcoin mining. And of that, 36% takes place in Xinjiang, the largest regional component. Why? Cheap coal means cheap energy to power the machines that mine Bitcoin. Xinjiang has an abundant supply of coal, and the region’s relative remoteness means that it’s far cheaper to use the resource locally than move it to other parts of China. The issue is not that the Chinese government uses forced labour in Xinjiang coal mines—the reporting on that is inconclusive. Rather, because of the atrocities occurring in Xinjiang, any product produced there brings with it high ethical and regulatory risk.

In the camps—which Beijing calls “vocational educational and training centres”—guards try to “deradicalise” Uighurs for crimes such as wearing long dresses, abstaining from pork or alcohol, or praying. While the difficulty of reporting in the region means that concrete evidence is scarce, camp survivors have described systemic torture, forced sterilization, and rape. (Beijing denies committing atrocities.) In January, right before leaving office, Secretary of State Mike Pompeo declared that Beijing was committing “genocide” in the region. His successor, Antony Blinken, agrees.

To summarize: Roughly 20% of new Bitcoin is mined in Xinjiang, the site of some of the world’s most egregious human-rights abuses.

Today, Bitcoin’s association with Xinjiang is barely discussed. But that may change. For public-facing funds considering investing in the notoriously volatile asset, there are two other risks to consider. The first is that because of the concern among the American public about human-rights abuses in Xinjiang, holding assets tied to the region comes at the risk of a public relations disaster.

Already, activists have criticised Olympic sponsors for participating in the “genocide Olympics”—the 2022 Beijing Winter Games. Multiyear campaigns to hive Xinjiang off from the global supply chain are already well under way.

In July, more than 190 organizations, including the AFL-CIO, called for clothing brands to end all sourcing from Xinjiang within the next 12 months. (In 2020, roughly 20% of the world’s cotton came from Xinjiang.) It’s not hard to imagine Bitcoin becoming another frontier in their campaigns.

Investors should be alert for regulatory action. Bitcoin’s Xinjiang relationship gives ammunition to those in the U.S. government who may want to further monitor or restrict the transactions. Analysts expect the Biden administration to pay close attention to Bitcoin. In mid-February, Treasury Secretary Janet Yellen criticised the “misuse” of cryptocurrencies in laundering money or funding terrorism. At the same time, Bitcoin’s Xinjiang connection could put it on the radar of the various arms of the Commerce, State, and Defense departments that are seeking to reduce U.S. dependence on physical and digital Chinese goods. If this trend intensifies, the Treasury Department could sanction the Bitcoin mining firms that have large operations in Xinjiang, or issue advisories that it is “studying” Bitcoin’s links to the region—signalling to global financial institutions another risk of holding the cryptocurrency.

In January, U.S. Customs banned the imports of Xinjiang cotton and tomato products and told U.S. companies to get forced labour out of their supply chains. Extricating Bitcoin from Xinjiang could be far more difficult. Unlike, say, blood diamonds or Iranian crude oil, Bitcoins exist only digitally. While there is a public record of the billions of Bitcoin transactions, it’s exceedingly complicated to determine the geographic origin of a particular Bitcoin. That means all Bitcoin holders can deny any connection to human-rights abuses—but also risk being tarnished by the association.

It has long been ironic that Bitcoin, developed to decentralize power, is so dependent on China, a country ruled by a government obsessed with centralizing it. But depending on China is one thing. Depending on Xinjiang is another. There are many excellent ethical and regulatory reasons not to buy Bitcoin. Add Xinjiang to that list.

Isaac Stone Fish is the CEO and founder of Strategy Risks, a firm that quantifies corporate exposure to China.>



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The eurozone economy contracted in the second half of 2023 following a surge in energy and food prices triggered by Russia’s invasion of Ukraine, and the subsequent rise in interest rates intended to tame that inflation.

By contrast, the U.S. economy expanded strongly over the same period, opening up an unusually wide growth gap with the eurozone. That gap narrowed as the eurozone returned to growth in the first three months of the year, while the U.S. slowed.

However, surveys released Thursday point to a fresh acceleration in the U.S., even as growth in the eurozone strengthened. That bodes well for a global economy that relied heavily on the U.S. for its dynamism in 2023.

The S&P Global Flash U.S. Composite PMI —which gauges activity in the manufacturing and services sectors—rose to 54.4 in May from 51.3 in April, marking a 25-month high and the first time since the beginning of the year that the index hasn’t slowed. A level over 50 indicates expansion in private-sector activity.

“The data put the U.S. economy back on course for another solid gross domestic product gain in the second quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Eurozone business activity in turn increased for the third straight month in May, and at the fastest pace in a year, the surveys suggest. The currency area’s joint composite PMI rose to 52.3 from 51.7.

The uptick was led by powerhouse economy Germany, where continued strength in services and improvement in industry drove activity to its highest level in a year. That helped the manufacturing sector in the bloc as a whole grow closer to recovery, reaching a 15-month peak.

By contrast, surveys of purchasing managers pointed to a slowdown in the U.K. economy following a stronger-than-expected start to the year that saw it outpace the U.S. The survey was released a day after Prime Minister Rishi Sunak called a surprise election for early July, banking on signs of an improved economic outlook to turn around a large deficit in the opinion polls.

Similar surveys pointed to a further acceleration in India’s rapidly-expanding economy, and to a rebound in Japan, where the economy contracted in the first three months of the year. In Australia, the surveys pointed to a slight slowdown in growth during May.

Businesses reported that they were raising their prices at the slowest pace since November, which should reassure the European Central Bank. However, the eurozone continued to add jobs in May, suggesting that wages might not cool as rapidly as the ECB had hoped.

The ECB released figures Thursday that showed wages negotiated by labor unions in the eurozone were 4.7% higher in the first quarter than a year earlier, a faster increase than the 4.5% recorded in the final three months of 2023

The ECB has signalled it will lower its key interest rate in early June, while the Fed is waiting for evidence that a slowdown in inflation will resume after setbacks this year.

Nevertheless, eurozone businesses and households shouldn’t bank on successive cuts to borrowing costs, ECB Vice President Luis de Guindos said. “There is a huge degree of uncertainty,” he said. “We have made no decisions on the number of interest rate cuts or on their size,” he said in an interview published Thursday. “We will see how economic data evolve.”

Continued resilience in the eurozone economy would likely make the ECB more cautious about lowering borrowing costs after its first move, economist Franziska Palmas at Capital Economics wrote in a note. “If the economy continues to hold up well, cuts further ahead may be slower than we had anticipated,” she said.

– Edward Frankl contributed to this story.

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