BTC Mining Might Have Been Shifting Out Of China Even Before 'Crackdowns'

June 4, 2021 12:30 PM
Crytpo and Bitcoin Market Cap Story of Day

Crytpo and Bitcoin Market Cap Story of Day


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Crypto was down this morning with alt-coins leading the selloff. Dogecoin (DOGE) and Polkadot (DOT) are seeing the largest losses in the Top 10 and are down over 12%.

Crypto Story of the Day

The BTC network hasn't shown any obvious reactions to reported crackdowns on mining activity in China. At the same time, Chinese BTC mining hardware producer Canaan has reported that 78% of Q1 revenue came from overseas markets.

Over the past several months, Chinese authorities have renewed scrutiny of BTC mining and introduced uncertainty regarding the viability of such activity in the country. This renewed scrutiny reemerged in March when the government of the region of Inner Mongolia revealed plans to shut down crypto mining as part of broader efforts to meet energy efficiency standards.

Since then, efforts against mining in the region have included a telephone hotline for “reporting suspected [crypto] mining outfits.” Anti-mining efforts and rhetoric culminated at the end of May when a readout from a meeting of China’s State Council noted that discussions included “[cracking] down on [BTC] mining and trading behavior.”

During what’s been a 3-month period of sustained pressure on BTC mining in China, the coin’s blockchain hasn’t displayed any signs of adverse effects. In fact, the BTC hash rate achieved an all-time high in April. Over the past several months, the hash rate has seen declines correlated to selloffs, behavior that’s historically been typical for the network. 

Other metrics have also indicated normal function of the network. For example, the BTC mempool— the number of transactions waiting to be confirmed by the network and looked to as an indication of network congestion— has been elevated over the past several months, but well below previous highs from 2017 and 2018. 

At the same time, several North American mining firms have released Q1 2021 results, reporting increased revenue, expanded mining capacity, and new hardware orders. For example, Riot (NASDAQ: RIOT) reported “record net income of $7.5 million,” while Bitfarms (TSXV: BITF)  raised CAD 80 million to purchase new hardware and saw a 209% increase in Q1 revenues compared to the same period last year. 

This week, Chinese mining hardware maker Canaan (NASDAQ: CAN) reported that 78% percent of Q1 revenue came from non-Chinese markets, compared to 4.9% for the same period in 2020. 

Widespread shutdowns of mining facilities in China, which accounts for ~65% of global hash power, would’ve likely resulted in hash power drops greater than those seen to-date, along with greater network congestion. 

We’ve previously pointed out anecdotal evidence dating to before the recent anti-mining rhetoric which suggested that mining was already shifting out of China. As such, up until now, the most noticeable effect of the rhetoric may be the acceleration of BTC mining outside China.

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