Unless there is also lots of demand from bitcoin to RMB, if not then foreign reserves have to be tapped at some point.

The government doesn't care what the bitcoin/rmb exchange rate is because they don't buy oil or imports in bitcoin nor do they hold any bitcoin reserves.

I'm not disagreeing with that: Bitcoin isn't a sneaky way of doing forex unless the RMB used to buy bitcoin is being converted into dollars (or another convertible currency), which most definitely is cared about.

Mining operations can convert Chinese electricity into bitcoin.

So use RMB to purchase electricity for mining bitcoin, convert mined bitcoin to currency outside of China (or sell for RMB to someone that wants to do that and use RMB to buy electricity to mine more bitcoin).

Ya, ok. I can believe that, but it isn't very direct.

China does have cheaper electricity than the west, especially since most of it still comes from cheap dirty coal.

Aren't the bitcoin miners in China siphoning electricity off the grid for free?

If your using btc to launder money you're likely converting it to other stable currencies

Except if they leave the money in bitcoin they don't have to explain where they got it. If they turn it into a foreign currency they have to tell a bank where it came from. Come to think of it, that's probably where all the ICO demand is coming from. These guys have money stuck in crypto and are desperately looking for a way to invest it.

Exactly. The bitcoin millionaires have a lot of unrealized gains. That's where the term whale comes from.