BTC hashrate and price drop as Chinese mining operations shut down

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The BTC token price—and more importantly, the network’s hash rate—has continued to plummet following a series of Chinese government actions. These actions, in the form of restrictions on financial services and digital asset mining (transaction processing) follow rumors that most, if not all, digital asset activity would become illegal in China soon.

Prices for BTC and most other digital assets (including BSV) have dropped by around 20% in the past week as the news spread. BTC’s network hash rate fell from an all-time-high of 180.666m TH/s on 14th May to 120.46m TH/s at press time—its lowest point since November 2020 (at that time, it was increasing).

This is significant as China has long been a major hub for digital asset mining activity, thanks mainly to the lower cost of electricity in some regions. The loss of this hashing power—likely well over a third of all the hashing power currently available to BTC—is a serious concern for the already-creaking network, especially when it happens so suddenly.

The People’s Bank of China (PBOC) released a statement on Monday saying banks in the country must not provide services for digital asset trading or transaction settling. Accounts related to digital asset exchanges and even OTC (over-the-counter) traders would also be prevented from funding these activities.

It came after consultation with major banks and payment processors including AliPay, the Industrial and Commercial Bank of China, Agricultural Bank of China, Construction Bank of China, the Postal Savings Bank, and Industrial Bank. These institutions followed up with statements of their own, telling customers to halt digital asset trading activities.

The PBOC explained, as it has done in the past, that its announcement was to combat price speculation in Bitcoin and other digital assets, maintain general financial stability and security, and to protect people’s property.

Mining operations shutting down rapidly

In mid June 2021, authorities in Sichuan province advised mining operations to prepare for a shutdown. The Sichuan Development and Reform Commission and Energy Bureau then said it would shut down over 25 mining and digital asset projects in the region.

Other provinces such as Inner Mongolia, Xinjiang and Yunan have made similar announcements in recent weeks, and mining operations in those regions have been turning off their machines. There is now a scramble to find alternate locations in other countries. While there are several potential hotspots for mining activity (most prominently El Salvador, which appears to be encouraging miners to move there) it’s yet to be seen whether they can provide the same large-scale infrastructure, energy supply and related services that made Chinese digital asset mining so popular over the past 12 years.

Reports of impending new restrictions began to appear on social media in China around the first week of June 2021, suggesting most activities related to digital assets would gradually become illegal, with actions beginning within months. As usual, while some noted these rumors usually had some grounding in fact, others dismissed it as simply more scaremongering.

Previous “China bans” have impacted the blockchain industry at intervals almost as cyclical as digital asset bull/bear runs. In fact, the two have a close correlation, with the most significant of them occurring in 2014, 2018, and now 2021.

What makes this time different is the impact on mining. Restrictions in past years have mainly focused on exchange trading and use as currency, while leaving the mining/processing industry largely unaffected. BTC and other digital asset mining remained a lucrative business in China. Miners have long considered the possibility that their businesses would someday become illegal, but continued in the hope authorities would not consider mining a threat to economic stability and focus more on investments, financial crimes and marketing/investment scams (e.g. MLMs).

Many in BSV had seen these events as inevitable, or at least too high risk to make large investments, and as a result most BSV transaction processing operations are already located outside China. While some services are based there, the impact on BSV’s hashrate is likely to be softer than on BTC, ETH, and other popular blockchains.

Watch: CoinGeek Zurich panel, BSV is Green Bitcoin: Energy Consumption & Environmental Sustainability