Underground Bitcoin Mining Thriving in China

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Is China Still Mining Bitcoin?

Before June of last year, Chinese Bitcoin mining produced the most Bitcoins of any place in the world, churning out one half of the global supply. The Chinese government then cracked down on all crypto mining in the country, motivated by their desire to reduce greenhouse gas emissions, on the one hand, and their aim to make way for the national digital coin, on the other. The people who reaped the rewards of this move were Bitcoin mining companies in Canada and Europe, who found themselves striking considerably more Bitcoin than before, and without improving their production capacity. “It’s like we’ve doubled the number of machines we have”, said Fiorenzo Manganiello of Lian Group.

Chinese mining used coal to derive its energy, which made its environmental impact particularly pronounced. After the official crackdown, miners moved to nearby countries like Kazakhstan and Mongolia, although transporting the equipment presented challenges of its own. Further away, places like Norway and Canada grew into mining hubs due to their abundance of renewable power. Initially, the difficulty was in constructing mining facilities quickly enough to meet the high demand. “There is a lot of new mining equipment being sent to the US and Canada instead of China, but data center capacity is a bottleneck”, explained Kjetil Hove Pettersen of Kryptovault. Let’s follow this story into 2022 and also touch on the interesting interaction between Bitcoin mining and Bitcoin prices.

Keeping the Pressure On

Chinese officials didn’t just slap down their ban and lay back to watch. In September 2021, they said they would focus more attention on locating illegal mining in the country through monitoring electricity usage. They also made crypto trading illegal in that month. Mining projects in Jiangsu province found themselves targeted by renewed crackdowns from that time on. The pressure was maintained over the following months, so that, in the city of Dongguan, authorities confiscated 2,957 mining facilities between October 2021 and March 2022.  Just on March 15th, 554 machines were taken by authorities in Yunfu.

Bitcoin mining done on a smaller scale is often hit hard by slumps in the price of the digital currency. This was the case in April 2022, when the price of Bitcoin plummeted by 24%, and again at the beginning of May, when crypto currencies stumbled dramatically, draining $600 billion from the crypto sector as a whole. In times like these, it becomes more challenging for smaller companies to come out with a successful bottom line, and, for this reason, they sometimes switch off their machines when prices are low.

Underground Mining

Predictably, following the ban, China’s portion of global crypto mining went from 34.3% in June last year to 0%, the following month. Less expectedly, between August and September, China reclaimed a hefty 22.3% of world share, taking over the number two world ranking. Analysts explain that Chinese miners seem to have continued operating in the country after the ban, but with altered location data. In September, they seem to have stopped manipulating their data information. Crypto mining was also physically relocated to some extent after June, especially by the more well-known mining operations, and oftentimes to the USA.

Some Chinese miners went to Russia, which is evident in the January 2022 statistic that as much as 4.66% of global mining was being done there. In the same month, Kazakhstan was hosting 13.22% of world mining activity, down from 17.7% in September, due to political instability and high energy prices. Overall, Miko Matsumura of Gumis Cryptos Capital believed that, since the ban, crypto had come back stronger, saying, “Not all assets have shown such flexibility, reliability and security”. Indeed, the hashrate (collective computational power) of the Bitcoin blockchain grew 40% between the June ban and May this year.

The Private Sector and Bitcoin Mining

Jasmine Technology Solution and Comanche International – two large companies based in Thailand – put a lot of money into Bitcoin mining near the beginning of 2022. Jasmine spent 3.3 billion baht on the purchase of new mining machines, and Comanche put in 60 million baht. “[This interest from big companies and institutional investors] boosts confidence in digital currency”, concluded Kasikorn Research Center. This dynamic between the activities of private firms and general crypto sentiment is one traders should keep an eye on in months to come.

As we’ve mentioned, the opposite dynamic, by means of which falling Bitcoin prices tend to influence smaller scale mining activity, is also true. The main factors that accelerate or slow down Bitcoin mining are Bitcoin prices, electricity costs, and mining rates. These will determine how much crypto mining will be done in the remainder of 2022 and where on the globe that mining will happen.

For those who invest in the price of Bitcoin and other top cryptos as CFDs, although the concept of crypto mining seems far removed from the trading platform, you can see above how major challenges faced by miners in top countries like China may affect their prices, and as such you ought to keep a close eye on the news before making trading decisions.

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