In the end of an era for Chinese Bitcoin mining; Beijing has started the implementation of their much touted ban on Bitcoin (BTC), following a series of policy announcements over the previous weeks.
The dust has begun settling as the market stabilises in the aftermath of these decisions, and the emergence of silver-linings offers a glimmer of hope as the crypto industry stands witness to what has been coined by some the Great Mining Migration.
In the coming weeks analysts expect over 90% of Chinese crypto mines to go offline. However despite reports, China’s State Council hasn’t explicitly ordered the closure of BTC mining operations, in a subtle move Beijing have ordered the disconnection of power supplies.
In late May Chinese Vice Premier Liu He announced a ‘crackdown on Bitcoin mining and trading behaviour’, now we see action.
This has major consequences for the BTC network, Chinese miners represent over 65% the global network of miners working on the BTC blockchain.
This recent news has also impacted Bitcoin mining hardware suppliers, BitMain one of the leading Chinese BTC mining rig manufacturers have already revealed that they will suspend sale of their products until they can successfully relocate overseas.
China Has Banned Bitcoin 13 Times Since 2012
Chinese crypto restrictions started in 2013 when the Chinese government recognised BTC as virtual property, but banned its use as tender for transactions. Later in 2017, the Chinese government banned crypto exchanges; driving crypto-users into payment services as an alternative means of access – this was alongside a ban on new Initial-Coin-Offering (ICO) events in the country.
However, the current news of a Chinese BTC ban first emerged in late May, with Liu He’s announcement on behalf of the Chinese State Council. This was quickly followed by further news that Beijing had ordered the country’s largest financial institutions to stop dealing in cryptocurrency and crypto-related financial products.
Leading to a series of provincial-level crackdowns on local BTC mining operations; in Inner Mongolia, Xinjiang, Sichuan and parts of Yunnan. In hydro-electricity rich Sichuan 26 BTC mines have been told to stop operating.
Beijing next decided to reiterate restrictions on handling cryptocurrencies in a meeting with China’s major banks including widely-popular payment company AliPay.
Whilst the market has undergone a volatile reaction to the news coming out of China, many analysts dismiss this simply as the fear, uncertainty, and doubt phenomenon (FUD) and point to the fact that China has ‘banned BTC’ 13 times since 2012.
Despite accusations from Beijing that cryptocurrencies disrupt the traditional global economic order and facilitate large-scale illegal activities such as money laundering; this mining ban news trails the launch of China’s own digital currency (CBDC) – the Digital Yuan.
Therefore these latest moves could be ascribed to Beijing’s overarching strategy against the dollarisation of cross-border transactions, trade, and commerce – and a perceived need to ensure domestic supremacy of the Digital Yuan over BTC as the cryptocurrency of choice in China.
For the Chinese government this acts as a two birds; one stone policy solution – additionally facilitating Beijing’s desperate desire to reduce their carbon-emissions footprint. Beijing views the energy-intensive BTC mining industry as an easy win-win target for regulatory measures.
Conversely, this may actually serve to help answer the market’s FUD concerning the global environmental impacts of BTC and crypto mining; with a scramble to relocate to pro-crypto regulatory environments that offer cheap and renewable green energy expected by analysts to lead to a greener BTC.
Bitcoin Recovers From Chinese Mining Ban Price Drop
The initial market impact of the Chinese mining ban was ugly; with the price of BTC plummeting to below $30,000 for the first time since January – half the recent all-time high in April. The FUD driving this BTC price drop also impacted Ether (ETH) which fell under $2,000 – and impacting other altcoins such as Ripple (XRP) notably. However, despite $1 trillion briefly being wiped from the crypto market cap; the volatility has now settled with BTC retaining support at $30,000 and price ranging in the mid-30s.
This disconnection of the vast Chinese BTC mining industry has resulted in a fall in the BTC hashrate; this in turn has increased profitability in the short-term for non-Chinese miners benefiting from a drop of over 40% in the BTC hashrate.
In a knock-on move the price of BTC mining rigs has slumped by as much as 75%.
Despite the short-term market volatility, we can therefore start to see silver-linings beginning to be revealed in the sensation surrounding these moves by Beijing.
First and foremost, this has been a test of BTC’s resilience – and provides a demonstration that even one of the world’s most powerful countries can’t put a halt to the growth and adoption of BTC.
Furthermore, this is a major inflection point for Asia’s crypto mining industry; and it is clearly a big win for western crypto miners and the western nations that wish to attract them (such as de-Central America).
With a lower BTC Hashrate producing higher mining rewards business is even more profitable, and the end of the BTC mining network’s reliance on cheap and dirty Chinese coal-powered energy fits well into the push towards a green crypto industry.
This also serves a greater benefit to BTC; a broader decentralisation of the BTC mining network. Enhanced decentralisation will de-risk the cryptocurrency from geopolitical considerations; preventing any single-country from containing a majority of the mining network under its regulatory jurisdiction.
This is incredibly healthy for the balance of power across the BTC network and this great mining migration will also offer a slightly more equal distribution of the accumulating BTC wealth across the globe too.
However, the speed at which fleeting Chinese miners are able to reconnect to the network is a crucial factor for BTC security; with over 65% of the network facing a move – there is an increased risk of a 51% network attack.
Indeed, countries in challenging development paradigms such as Kazakhstan and El Salvador are able to capitalise on this opportunity to attract crypto as a new high-tech industry and source of needed foreign direct investment (FDI).
Texas will be the crypto leader.
Cryptocurrency is now coming to Texas grocery stores.
— Greg Abbott (@GregAbbott_TX) June 19, 2021
The opportunity presented has also attracted the attention of Texas Governor Greg Abbott with the Governor pitching Texas as an ideal libertarian regulatory environment with an abundance of cheap green energy. Some analysts even speculate that 2021 will see the creation of world’s first special crypto economic zones.
The damage has now been done – all eyes are on BTC to see how it recovers.
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