38 BARRON’S February 22, 2021
OTHER VOICES
Some 20% of the world’s Bitcoin mining takes
place in China’s Xinjiang region, where the U.S.
government says a genocide is occurring.
Bitcoin’s Worrying
China Connection
C
ritics of the nearly
ubiquitous digital
currency Bitcoin
often focus on its
environmental
consequences.
After Tesla an-
nounced recently that it had bought
roughly $1.5 billion in Bitcoin, send-
ing the cryptocurrency’s value sky-
rocketing, 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 trans-
actions, 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 larg-
est regional component. Why? Cheap
coal means cheap energy to power
the machines that mine Bitcoin. Xin-
jiang 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
labor in Xinjiang coal mines—the
reporting on that is inconclusive.
Rather, because of the atrocities oc-
curring in Xinjiang, any product pro-
duced there brings with it high ethi-
cal and regulatory risk.
In the camps—which Beijing calls
“vocational educational and training
centers”—guards try to “deradicalize”
Uighurs for crimes such as wearing
long dresses, abstaining from pork or
alcohol, or praying. While the diffi-
culty of reporting in the region
means that concrete evidence is
scarce, camp survivors have de-
scribed systemic torture, forced ster-
ilization, 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 egre-
gious human-rights abuses.
Today, Bitcoin’s association with
Xinjiang is barely discussed. But that
may change. For public-facing funds
considering investing in the notori-
ously 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 criticized
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 organiza-
tions, including the AFL-CIO, called
for clothing brands to end all sourc-
ing from Xinjiang within the next 12
months. (In 2020, roughly 20% of
the world’s cotton came from Xinji-
ang.) It’s not hard to imagine Bitcoin
becoming another frontier in their
campaigns.
Investors should be alert for regu-
latory action. Bitcoin’s Xinjiang rela-
tionship 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 criti-
cized the “misuse” of cryptocurren-
cies 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 de-
partments that are seeking to reduce
U.S. dependence on physical and dig-
ital Chinese goods. If this trend in-
tensifies, 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—signaling 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. com-
panies to get forced labor out of their
supply chains. Extricating Bitcoin
from Xinjiang could be far more diffi-
cult. Unlike, say, blood diamonds or
Iranian crude oil, Bitcoins exist only
digitally. While there is a public re-
cord of the billions of Bitcoin transac-
tions, it’s exceedingly complicated to
determine the geographic origin of a
particular Bitcoin. That means all
Bitcoin holders can deny any connec-
tion to human-rights abuses—but
also risk being tarnished by the
association.
It has long been ironic that Bit-
coin, 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 Bit-
coin. Add Xinjiang to that list.B
Isaac Stone Fish is the CEO and founder
of Strategy Risks, a firm that quantifies
corporate exposure to China.
By Isaac Stone Fish
Illustration by Pete Reynolds