Early signs of BTC downturn show up in China

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Times have changed for BTC block processors in China. Once considered a pariah by many Chinese government officials, the sector is now finding itself in demand by local municipalities as attitudes towards blockchain have shifted this past year with central government regulators.

The city of Ya’an, located in China’s mountainous Sichuan province, is publicly encouraging blockchain industry firms to come set up shop and consume excess hydroelectricity ahead of the summer rainy season. This encouragement comes in the form of recently jointly issued public guidance by the Municipal Economic and Information Bureau and the Municipal Development and Reform Commission.

The Sichuan region is well known for its abundance of digital currency processing facilities, which are estimated to account for over 50% of the BTC network’s computing power. Although not expressly mentioned in the guidance, BTC processing is the primary activity with the sector which consumes the most electricity.

According to other online reports, the city officials are looking to promote the city’s infrastructure advantages and make it a high-quality example for consuming excessive hydropower electricity and build itself into “an impactful blockchain industry hub” in the country.

Is this a case of better late than never or indicator of trouble brewing for BTC processors in China?

BTC transaction processing may have been taboo in certain quarters of China but never prohibited. In the past, officials would publicly complain about the environmental and economic impact of BTC processing while privately granting business permits and selling off excess power and commercial occupancy space to firms at customized rates.

It’s reasonable to ask why now. Cities, and their surrounding areas, now actively embracing the industry might signal that the sector’s demand for space and electricity has waned as the halving quickly approaches.

If this were 2016, the guidance issued by these government bodies would come as a welcome sign that China is finally embracing a rapidly growing sector.

In 2020, Chinese BTC processors are facing unprecedented troubles as they seek to navigate the halving against the backdrop of the COVID-19 pandemic which has wiped out fresh investment capital from coming in to prop up the BTC token price. Many publicly traded block reward mining companies are blaming the pandemic on guidance calls, but the reality is these operations were not properly prepared for life at the 2020 Bitcoin halving. BTC hash power is projected to decline as unprofitable nodes go offline, and smaller companies close or get acquired.

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Adding credence to this premise is the concession China-based ASIC hardware manufacturers are now offering to those that purchased their equipment. Beijing-based Bitmain issued cash coupons to compensate customers who ordered its latest mining machines ahead of their price markdowns. MicroBT cut prices on its flagship WhatsMiner M30S by upwards of 20%.

Some China-based BTC processing operators have already announced they are winding down ahead of the halving because of the BTC market price stagnation. Earlier in the month, CoinGeek reported that mining pool operator Valarhash Baite had signaled it had abandoning mining the BTC blockchain.

If you look beneath the surface of the positive news coming out of China indicators surrounding the BTC ecosystem there show a community in trouble and faced with uncertainty.

The BTC processing purge is coming, and it will hit China the hardest. Chinese cities and locally-based ancillaries in the industry that could previously reap the rewards from BTC processing will find a tougher road ahead as less competition means less demand for what they offer and less bargaining power with those who remain interested.