Bitcoin is “China Proof,” Hash Rate Up over 140% After June Collapse
October 1, 2021 - Crypto News, Expert Commentary
Bitcoin is like the mythical hydra.
The more people try to kill it; it becomes more stronger. There have been several moments in its dozen years of existence where it seemed like doomsday was approaching. Bitcoin has religiously bounced back from these setbacks.
The China Bitcoin ban of June 2021 felt like one of these moments. This ban came gradually, with authorities placing restrictions on mining before launching a full-scale crackdown on mining farms and all forms of trading.
What followed was devastating—the Bitcoin hash rate dropped by over 50 percent, which was the most significant drop in years. Prices took a similar route, heading toward the $30k mark after hitting $60k in April.
Doomsday predictions are always around the corner. After all, China was the single largest Bitcoin mining jurisdiction. The shutdown of over half of all active Bitcoin mining rigs was always going to create a panic. Unfortunately, some traders saw the prevailing winds and started selling off crypto.
Bitcoin Hash Rate Makes 140% Recovery From 2021 Lows
Those who have been around the Bitcoin scene for a while know all about this rollercoaster ride. Even in the bleakest moments, they retain the faith that this asset has a consistent long-term trajectory. There are significant setbacks along the way, but Bitcoin always rebounds and eventually shatters whatever ceiling pessimists have set for it.
By September 2021, Bitcoin had recovered 140 percent of the hash rate drop from June through to July. This drop was almost exclusively the result of the “great mining migration” out of China. Accordingly, there was a massive drop-off in mining numbers when the ban took effect.
The Bitcoin mining hash rate measures how many miners are actively participating in confirming Bitcoin transactions. This process is labor-intensive and involves miners actively competing for the right to add the next block of Bitcoin transactions to the blockchain.
Chinese miners left the network in droves around June and scrambled to move overseas or purchase shares in international mining operations.
China has not limited its ire to miners. The People’s Bank of China has issued statements that digital assets don’t have real value support. This view indicates an intention to restrict mining and all forms of crypto commerce in the world’s largest market. China relinquished its position as the world’s predominant mining nation and is not likely to roll back the restrictions soon.
The Logistical Challenge of the Bitcoin Mining Migration
Bitcoin mining is a massive logistical undertaking. The fact that there was a significant drop in the hash rate underscores the scale of this operation. Once Chinese miners went offline, it would take a while to either set up shop elsewhere or be replaced by western miners.
The government of China imposed deadlines for ending mining, and the miners knew better than to challenge Beijing. This unilateral decision has luckily not had a domino effect on mining in other jurisdictions.
Notably, miners in North America took advantage of this short window to rake in serious profits. Mining difficulty decreased because there was less competition. With the same or even redundant equipment, miners could make more than the period before the ban.
This shift reflects the situation that the Bitcoin mining community found itself in. Mining equipment manufacturers like Bitmain could not supply enough equipment to satisfy the considerable demand, mostly from North American miners.
Therefore, the combination of equipment shortage and the process of relocating contributed to this hash rate slump. Luckily, Advanced Mining operates outside China and has a direct line to Bitmain. These factors meant that those who mine with us were unaffected by the developments of the past three months.
Bitcoin Mining Is Getting Back to Normal
The rebound in mining hash rate is indicative of a resilient network.
Notably, prices are also up and may soon get back to the $60k level that it dramatically dropped from. Bitcoin mining difficulty is also up, approaching familiar territory after the seismic reset in the Bitcoin mining landscape.
Bitcoin could be headed for another bullish cycle. However, let’s not get ahead of ourselves. The key aspect now is there is a semblance of normalcy in how things are panning out. That is of utmost importance because the Chinese crackdown was another test of the resolve and resilience of the Bitcoin community.
The 140 percent rise from July 2021 lows was a much-needed rebound. Statistics on who exactly is responsible for the rebound are not available, but there could be a decent number of Chinese miners who have turned their rigs back on overseas, especially in the U.S. Also, immediate neighboring countries like Kazakhstan have experienced significant increases in Bitcoin mining investments.
Similarly, some miners in other jurisdictions took the cue and ramped up their operations. There could also be a decent amount of Chinese equipment that went to overseas miners.
Bitcoin has repeatedly shown how difficult it is to contain. That is the beauty of a decentralized and borderless asset. One can only speculate what the Chinese government intended to achieve with this ban. However, they might have to reconsider if Bitcoin continues in its long-term ascendance to the very top of the financial ladder.
This decision will ultimately seem like a hiccup in Bitcoin history, just like the Silk Road Scandal and many other crashes that seemed like they would handicap this unique asset. To quote the famous Thanos line: Bitcoin is inevitable.
This coin is impervious to national policies. It is a worldwide community that has come to appreciate the collective power of a community.
The Energy Question
Now that Bitcoin seems to be out of the woods, it may be well-worth addressing the reason China used to crack down on mining.
China’s National Development and Reform Commission states that the reason for banning Bitcoin mining is that China has made pledges to reduce carbon emissions and meet climate change goals. Chinese President Xi Jinping reiterated the Carbon targets in his recent address to the UN General Assembly. The bans previously affected individual provinces. However, by June, it was clear that this was going to be a nationwide ban.
This ban would make it sound like each Bitcoin mining rig produces thick CO2 every time it runs. Not at all.
Bitcoin mining is electricity-intensive. However, this electricity does not have to be from dirty sources like coal. After all, Bitcoin mining is fueling investments in renewable energy at rates that few other private sector enterprises have ever done.
Therefore, the Bitcoin mining ban tells a slanted story. This ban is an attempt to control the asset disguised as energy concerns. If the Chinese government had given miners an ultimatum to invest in clean energy, it would be fairer.
Advanced Mining Is Already Ahead of The Game
It is only recently that miners have appreciated the need for green mining.
At Advanced Mining, this was part of our focus since commencing operations in 2018. Even as other miners make logistical preparations for their operations, we are well set because our mining operations rely on cheap renewable electricity.
Accordingly, we can offer our equipment reselling and hosted mining services in tandem because prospective miners can source quality equipment and mine under optimum conditions with us.