Where Did the Chinese Miners Move?
After the Chinese authorities declared war on the cryptocurrency industry by banning any transactions with cryptocurrencies, many mining enterprises were forced to close or move to another country.
At the moment in China, in addition to mining, the purchase of cryptocurrency is prohibited, as well as any related investment activities, cryptocurrency trading and exchange.
As a result, China’s share of BTC mining has dropped 55% YTD, as many Bitcoin network members shut down their hardware. And the secondary market in China was quickly flooded with video cards, including the GeForce RTX 3090 and Radeon RX 6900 XT, cheaper than the market prices.
After the introduction of the ban, the largest mining pools were the first to react. Huobi, BTC.TOP and HashCow have ceased their activities in whole or in part. And the world’s largest manufacturer of Bitcoin mining equipment Bitmain temporarily stopped the sales at the end of June 2021.
According to the Chinese government, the decision to apply such harsh measures was caused by the excessive consumption of electricity, which is mainly generated by thermal coal-fired power plants.
But, according to some people from the crypto community, the real motive of the Chinese authorities was not to preserve the environment but to promote their own cryptocurrency. And given that the development of the digital yuan is in full swing right now, that seems like a sound idea.
At the end of June 2021, subway passengers in Beijing were able to purchase tickets using digital yuan. And two weeks earlier, the Agricultural Bank of China was the first in the country to allow its clients to convert digital yuan into cash and vice versa.
However, mining in China began to decline even before the bans were introduced. According to a study by the Cambridge Center for Alternative Finance on global Bitcoin mining from September 2019 to April 2021, China has gradually become less attractive to crypto enthusiasts. They gradually began to leave for other “more friendly” countries.
As Huobi Pool CEO Fei Cao told Cointelegraph:
“This year, the key trends in digital mining are increased compliance and capital requirements, and these two trends seem more promising in the region of North America where mining is permitted by local regulations.”
Currently, the United States has more than quadrupled its share of global BTC mining, from 4.1% to 16.8%.
The US was building up its hosting capacity long before the Chinese ban. In addition, the United States has some of the cheapest energy sources on the planet, many of which are renewable. And American investors are interested in working with miners.
Cheap electricity is also very attractive to large mining equipment manufacturers. For example, back in 2020, Bitmain partnered with Digital Currency Group subsidiary Foundry, which provides funding to Bitmain’s North American customers and supplies a large batch of BTC mining devices.
Also, miners were clearly interested in Kazakhstan. Its share in the world of Bitcoin mining this year has increased from 1.4% to 8.6%.
This country shares a border with China, so the cost of transporting the equipment is cheaper than transporting it across the ocean to North America. In addition, lawmakers in Kazakhstan are making the country more attractive to miners by allowing local banks to open accounts for cryptocurrency transactions.
Chinese companies have already taken advantage of this. Canaan, a major provider of cryptocurrency miners, announced in June that it had started mining BTC in Kazakhstan. Crypto mining company BIT Mining, which recently announced its expansion from the Chinese market, plans to acquire 2,500 BTC miners for deployment in Kazakhstan. According to experts, Chinese miners have sent about 4,000 mining devices to Kazakhstan.
Another important factor in Kazakhstan’s popularity as a destination for miners is the relatively low electricity prices, where 1 kilowatt costs $0.03. However, the country’s energy system is not as large as that of the United States.
Russia also increased its share in global mining to 6.5%. As in the case of Kazakhstan, Russia has a border with China, which is convenient when transporting mining equipment. And thanks to the country’s diverse climate, mining farms can be installed in cold climates, which will reduce cooling costs and maximize expected profits.
Less than half a year after the ban, Chinese miners have found a “new home” and the hash rate of Bitcoin is predictably recovering.
Thus, we can conclude that Chinese miners will not disappear, but simply move to other countries.