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Following the Bitcoin mining policies announced in May by Inner Mongolia, Xinjiang Uyghur Autonomous Regions, and Yunnan Province, a related policy was also announced on June 18 in Sichuan Province where the world’s largest hash rate (Bitcoin mining power) was concentrated. Sichuan has a more strict policy than other places, which resulted in the closure of 26 local cryptocurrency mining businesses.
This event dragged the price of Bitcoin down by more than 10% from $38,000 to below $33,000. Because the price recovered to $36,000 level on the 19th, some argued that the correlation between the current Bitcoin price and the mining farm is not strong since the price is mainly influenced by US monetary policy and the sentiments of Wall Street institutions. Nevertheless, now that the price dropped again to below the $33,000 level as I am uploading this post, it seems very clear that the shutdown of cryptocurrency mining businesses under China’s policy has a serious influence on the price of Bitcoin.
Since June 19, several mining farms across Sichuan have shut down their mining machines, resulting in a sharp drop in the hash rate of the entire Bitcoin network. According to BTC.com, the 24-hour average hash rate was around 100E, which has dwindled to the level of November 2020, down about 40% from its peak in May. At 00:00 Beijing time on June 20, power supply companies stopped supplying power to all cryptocurrency mining sites, and some miners who were not prepared for a sudden power outage suffered great damage.
Due to Chinese regulations, it has become a known fact that Bitcoin mining businesses are banned from China. Chinese mining farms, which once accounted for up to 75% or more of the Bitcoin network hash rate, have also found that this percentage will drop indefinitely starting June 20.
Sichuan is the place where the largest Bitcoin mining farms in China and the world are gathered, and Bitcoin mining was very successful, with a maximum simultaneous power consumption of about 8 million kW. An industry official said, “The exit of the Sichuan mining farm is a very tragic event for cryptocurrency miners even in the entire history of blockchain” and added that “Only time will tell how significant this event is to the history of Bitcoin”.
With the closure of Bitcoin mining operations, a large number of Bitcoin miners in China are currently at a crossroads in choosing whether to go abroad, wait and see for a change in government policy, or turn their business in a different direction.
Currently, large mining farms and miners are preparing to relocate overseas, and the United States, Kazakhstan, Canada, and Russia are top priority candidates. The United States and Kazakhstan are trying to accommodate them most actively, and the mayor of Miami and the AIFC Development Zone in Kazakhstan is said to have directly appealed to Chinese miners to move there. However, considering various factors such as the cost of overseas relocation, political security, economic stability, and power facilities, it can be regarded as a great challenge for relatively small mining farms.
Wait and See
Even with the announcements of the policies, some miners are still waiting. They are not expecting sunshine and rainbows until the end of the year at this point; however, they believe that opportunities for policy change will be created when considering that Bitcoin itself is not illegal under the Chinese legal system, and Bitcoin mining involves surplus power consumption, financial improvement in less developed areas, job creation, and global Bitcoin hash power leadership titles.
As the Bitcoin price has skyrocketed in the past year, those who started their business in 2020 or earlier have already made very high financial gains, so the impact of this mining shutdown may not be significant. In fact, foresight miners have already started to actively turn to DeFi and other project operations even before the policy announcement was made. Overall, blockchain and cryptocurrencies are still in their infancy, and Bitcoin mining is only a small part of the crypto world, and we can expect to see more of it being opened up in the world of blockchain.
The ban of cryptocurrency mining operations in China is a very important turning point in the history of Bitcoin. It is a tragedy for mining farms in China, but it can also be a new opportunity for other parts of the world. It is worth watching with interest to see what other long-term consequences this event will bring besides the price of Bitcoin.
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