Why crypto miners’ exodus from China is a market reset
On Tuesday, the price of bitcoin dipped below $30,000 for the first time since January 2021 as China stepped up a crackdown on crypto mining and trading in the country.
The Chinese clampdown is now responsible for plans by mining companies to exit China in search of countries with large electricity capacities. While that is exerting a heavy toll on the price of many cryptocurrencies, it does hold the opportunity for a truly diversified cryptocurrency market and an onward move to ensure increased use of clean energy in bitcoin mining.
In any case, the price of bitcoin and other cryptocurrencies is determined by many more factors other than the big hammer from the Chinese government. China’s campaign to control bitcoin has been on since 2014 and within that period the price of bitcoin has skyrocketed to new highs in 2017, 2020, 2021. The price of bitcoin was exchanged hands at $33,922 at the time of writing this article.
Nonetheless, the world’s most populated country is estimated to control between 65 percent and 75 percent of the world’s bitcoin mining activities as of 2018 and 2020. These activities are mostly located in four provinces: Xinjiang, Inner Mongolia, Sichuan, and Yunnan.
Sichuan and Yunnan’s hydropower make them renewable energy meccas, while Xinjiang and Inner Mongolia are home to many of China’s coal plants. A major factor at play in the Chinese campaign is the desire to reduce energy consumption and at the same time meet climate targets.
Hence, many of the mining companies are reportedly looking elsewhere as well as new energy sources to make their work conform to globally changing energy needs. US cities such as Texas and South Dakota and Canada are said to be the new destinations of some of the miners.
BIT Mining, one of the 26 Bitcoin mining facilities in Sichuan China asked to shut down by the government, confirmed its movement in a statement to the US stock exchange. The miner said it has already shipped 320 machines to Kazakhstan, with plans to send 2600 more Bitcoin miners to the central Asian country by the end of June 2021. Kazakhstan’s rich coal resources represent an ideal alternative to Chine and as a contingency plan, BIT Mining is planning to set up a mining hub in Texas.
Mining cryptocurrencies like Bitcoin is energy-demanding. Well, that may be an understatement. Actually, Bitcoin’s electricity consumption has become one of the most hotly debated topics in the industry.
A report by the BBC in February found that the Bitcoin network consumes 121.4 TWh of power per year, which means that it would be the 29th highest energy-consuming country in the world, above Argentina and below Norway.
Mining is the primary way of generating bitcoin.
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. Miners are like auditors who approve blockchain transactions and also create new bitcoins into the system.
Mining is performed using very sophisticated computers that solve extremely complex computational math problems. Miners count electricity as the biggest cost of generating bitcoin.
According to the University of Cambridge’s bitcoin electricity consumption index, bitcoin miners are expected to consume roughly 130 Terawatt-hours of energy (TWh), which is roughly 0.6 percent of global electricity consumption.
For many companies, the high electricity consumption rate and the dependency on fossil fuels to generate electricity are simply unacceptable. This is responsible for Tesla suspending bitcoin payments for its vehicles. The company’s entire work ethic is built around improving the use of renewable energy. The company has since said it will resume accepting bitcoin payments for its cars once miners of the cryptocurrency can show they are using roughly 50 percent clean energy, according to CEO Elon Musk in a tweet in June.
Experts say miners’ exit from China would potentially balance the market and address the question of energy consumption
“We are going to see a shift from Asia and more to the developed world. Ji wants more control of his country and bitcoin is about freedom,” said Mike Nogratz, CEO of Galaxy Digital Holdings, a Canadian digital currency equity investor.
The campaign in China is not only forcing exits of mining businesses in the country, miners outside China, and having to reprioritise renewable energy as their primary source of generating cryptocurrencies. BitFarm, a Canadian bitcoin miner which became the second cryptocurrency business to list on the Nasdaq exchange highlighted its move away from fossil fuels for mining bitcoin. BitFarm powers about 1 percent of the bitcoin network with about 99 percent of its energy need coming from hydroelectricity.
“Currently, most Bitcoin miners use coal as their power source as a result of unreliable or other sources and this is at odds with China’s vision to be carbon neutral in the future. When do I expect a solid sustained bounce? When bitcoin hashrate increases significantly which should serve as an indicator to me that some miners have shifted operations to places with cool temperature and steady renewable supplies,” tweeted a Nigerian bitcoin expert known as Igwe @Ssaasquatch.
A hash rate is a general measure of the processing power of the bitcoin network. As bitcoins are mined, blocks of verified transactions have to be hashed before being added to the persistently growing blockchain.
Hashes are created by successfully completing an intentionally difficult mathematical puzzle. The hash rate is a measure of how many times the network can attempt to complete this puzzle every second.
The seven-day average hashrate slid to 129.1 million exahashes per second on Tuesday, representing a significant drop from the all-time high of 180.6 million exahashes per second in mid-May, data from Glassnode.