Published: June 28th, 2021
The ban on crypto mining in China may push 90% of all the country’s mining activity offline. According to recent estimates, the action is about to paralyze an industry that contributes half of the global Bitcoin supply.
China’s sweeping cryptocurrency mining ban is paralyzing an industry credited with more than 50% of the global Bitcoin production. Miners are using the country’s restriction as a call to dump their machines in despair. In other reports, others are seeing refuge in alternative locations such as Kazakhstan, Russia, and the U.S.
According to Mike Huang, an operator of a cryptocurrency mining farm based in Sichuan, many miners are dumping the business to comply with Beijing’s policies. Many miners are selling their mining machines at the price of scrap metal, he added.
Local authorities in Sichuan, China’s second-leading Bitcoin mining hub after Xinjiang, enforced a crypto mining ban on Friday, June 18, and ordered 26 miners to shut down. The action spiraled into much of the industry degeneration that was witnessed in the week that ended on Saturday, June 26.
The Chinese State Council promised to clamp down on Bitcoin mining and trading in May to eliminate financial risks. The affirmation came following a global Bitcoin frenzy that resuscitated the country’s speculative cryptocurrency trading. Meanwhile, Beijing is already testing its central bank digital currency.
Chinese authorities allege that virtual currencies disrupt economic order, and facilitate money laundering and illegal transfer of assets. However, analysts think that the Chinese government is worried about more than just crypto’s ability to disrupt the status quo in the financial sphere.
Beijing frets that Bitcoin may unfairly compete with its digital yuan. Besides, the power-gobbling activity of mining virtual currencies could harm the environment.
Beijing’s latest policy on crypto has prompted China’s major mining centers such as Xinjiang, Sichuan, Inner Mongolia, and Yunnan to reveal detailed plans they are implementing to eradicate the activity.
Consequently, the price of the globe’s first cryptocurrency plummeted below $30,000 in the week that ended on Saturday, June 26, less than half the coin’s April peak price.
According to market analysts, the plunge is largely due to fears that China’s actions would eventually disrupt the larger market. Liu Hongfei, a senior executive of a mining operation in Yunnan, said that if the government completely bans the activity, every miner will have to quit, adding that it is never wise to fight China’s Communist Party policies.
Adam James, the senior editor at OKEx Insights, said the ban might push up to 90% of the country’s mining activity to the curb.
A vast majority of virtual currencies are created through the mining process where rigs or high-powered computers compete to solve complex math puzzles to verify new transactions. The process is power-intensive.
Nishant Sharma, the founder of BlocksBridge Consulting, a virtual currency mining industry consultancy, said the many mining operations in China are shutting down and disposing of their machines. He added that China’s shutdown is now momentarily benefitting all mining operations outside the country.
Sharma said that the block reward; the payment for taking part in the mining process, and an operation’s share of the global Bitcoin network’s hash rate, has automatically soared. While Sharma’s evaluation is modest, another analyst was not shy to throw a whole hammer into the works.
Winston Ma, a crypto investor who is also a New York University adjunct professor, said China’s action marks the end of an era for virtual currency mining in the country. He might have a point, going by the current prices of mining rigs, which have dropped by more than 80%. A miner in Sichuan said a mining machine that sold for 4,000 (approx. $620) yuan about a month or two ago now costs about 750 yuan (approx. $115).
At the same time, Bitmain, China’s leading manufacturer of virtual currency mining machines, said on Friday, June 25, that it is halting the sale of its products. The company added that it is scouting for quality power supplies abroad with preference in the U.S., Australia, Canada, Russia, Indonesia, and Kazakhstan.
Other big mining operations in the country are also shifting to bases abroad. On Monday, June 20, BIT Mining announced that it had successfully delivered the initial batch of more than 300 mining machines to Kazakhstan. The announcement added that another two batches containing more than 2,200 machines will get to the central Asian nation by July 1. CEO Xianfeng Yang said they are stepping up alternative quality mining resources overseas.
Aside from Kazakhstan, BIT Mining has invested in virtual currency mining data centers in Texas. The need to move has created opportunities for individuals and logistical companies willing to facilitate the emigration.
A crypto mining operations project manager who identified himself only as Mr. Wang said he has seen a surge in the number of local businesses seeking to move to Russia and other destinations abroad. However, he said only big operations are forthcoming. The demand for his services from small and medium mining operations is modest.
Wang said most such businesses weigh the big risks associated with moving their machines offshore. According to him, relocating the business abroad essentially means giving up control of your assets. He added that most businesses have opted to look within China in places such as Guangdong Province in the south, where regulations are not as limiting.
Meanwhile, a cross-section of miners is hoping that Beijing would eventually overturn its decision. Sun Weifeng, a Sichuan miner, said that since they have not received the local authority’s explicit order to demolish their mining rigs despite the utility company disconnecting the power supply, they remain hopeful.
He said that he would wait and see what happens in the next few weeks.
Meanwhile, the Bitcoin price slump that was associated with last week’s assault on the coin seems to have self-corrected. According to data from Morningstar, the virtual currency was exchanging at $34,804.10 on Monday, June 28 at 8:35 UTC.