The never-ending story that is going on in China is starting to gain momentum. The repeated bans that the government there has issued against cryptocurrency investors, this time are no longer a bad dream. Bitcoin mines are being closed down en-masse in the Middle Kingdom. What are the reasons for this and what consequences may it have for the cryptocurrency market? This is discussed in this article.
The big move
China’s stance towards Bitcoin has been quite negative for many years. However, this is the first time we have seen such significant actions. Sichuan Province, one of the largest Bitcoin mining centers in the world, is officially shutting down the operations of mines of the largest cryptocurrency. Inner Mongolia, Qinghai Xinjiang, and Yunnan are facing a similar situation. The alleged reason that forces this kind of action is the high energy consumption that accompanies Bitcoin mining. China is working hard to reduce its carbon footprint. Miners therefore become an obstacle. This seems to be a blow to the network, as the cheap electricity of this Asian country has resulted in about 65% of the global Hash Rate being located in China. However, is the long-term news that bad?
A step towards mining decentralization
Pictures of abandoned mines, packed miners, many pounds of equipment, and ongoing logistical ventures are circulating the internet. Several companies, including Canaan and BIT Mining have announced that they are relocating their equipment to Kazakhstan, with the intention of quickly connecting and restarting it before the end of July. Other targets for miners are areas of the United States. Among them is Texas, famous for its friendly approach to cryptocurrencies. Therefore, it can be deduced that the breakdown of such a large amount of Hash Rate accumulated in one country, to several other regions of the world, in the long term is beneficial for the BTC network. This process fosters the decentralization that has guided the essence of Bitcoin since its inception.
While in the long term, the current situation is very favorable for Bitcoin, in the short term its price is actually suffering. Attacks that regularly occur from the Chinese government are causing panic in the market, pushing many investors to sell at a loss. We provided more analysis on this topic in an article titled “Bitcoin has reached another low below $30,000”. If you haven’t read it yet, be sure to take a look!
So is there anything to fear?
Time is required for the situation to normalize. The holiday period provides quite a bit of it given that historically it has not particularly affected the volatility of the Bitcoin price. This gives miners the opportunity to relocate and start up mines in new, friendlier areas. Once this happens, we should see the Hash Rate return to its previous levels. It is worth noting that after the increases we witnessed from October 2020 to May 2021, the market also needs to catch its breath. This gives hope that the increases will continue in the near future.