Bitcoin reached ATH (all-time high) on 14th April 2021. It traded at $64,804.72 per BTC. After that, it is continuously declining and at press time BTC is traded at $34,670, -46.5% down from its ATH value. It all started with China, the world’s biggest Bitcoin mining country that accounts for nearly 65% of all mining activity in the world. China first barred banks and other financial institutions in dealing with cryptocurrencies in May 2021, followed by a series of country-wide crackdowns of mining operations across crypto mining hubs in Sichuan, Inner Mongolia, and Xinjiang.
A report from the University of Cambridge shows why the above three regions were primarily targeted for a crackdown to set an example for rest of the China.
All major mining firms in China are now moving their operations to other countries like Kazakhstan, a Central Asian country neighboring China and the US. Shenzhen-based BIT Mining had already delivered 320 mining machines to Kazakhstan and expects to have another 2,600 mining machines delivered to the country in July, and its remaining machines will be sent to “overseas data centers over the coming quarters.”
Another Hangzhou-based crypto mining hardware manufacturer Canaan said in early June that it had established its first overseas after-sales service center in Kazakhstan. Other Chinese crypto companies are said to be looking to relocate their businesses to the United States. A Guangzhou-based logistics firm reportedly said it had recently airlifted 3,000 kilograms of bitcoin mining equipment to Maryland. Huobi Mall, BTC.TOP and HashCow are among other major mining pools that have suspended their operations in China and moving overseas.
There are many theories in media behind China’s recent action on cryptocurrencies and mining. Reuters reported that the Chinese government is concerned about crypto’s volatile price, and its potential use for money laundering and illegal dealings. However, Wall Street Journal reported that the Chinese government may be concerned about optics: crypto mining’s reputation as an environmental disaster doesn’t square with China’s desire to be seen as a leader in green energy, with its leader pledging that the country will be carbon-neutral by 2060.
All this has lead to a massive drop in the BTC hash rate which is down by nearly 50% from its peak value in May 2021. The BTC hash rate is at the lowest level since May 2020 and has also notched the largest drop in history.
According to a report from CNBC, some of the non-China firms are considering this beneficial for other miners in the world. When a large number of Bitcoin miners go offline, the share of other miners in the network increases.
Hashrate is a key security metric. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack.
This also means that miners need to put more and more hash power to compete for block validation and rewards. Bitcoin is designed in a way that when more miners join the network, the difficulty to validate the block also increases which in-turns forces miners to add more hash power to its pool. Now, when a majority of mining firms are going off-line, dropping the network difficulty to low, it is becoming easier to solve the block challenge with relatively less hash power.
The vice president of crypto mining firm Foundry calculated that if there are no changes in power costs, the revenue of miners using the latest-generation Bitmain miner is now $29 per day as compared to $22 per day before the drop in the global bitcoin hash rate.
It is also important to note that, while it becomes earlier to mine BTC with dropping hash rate, it also affects the price and hence the total realized revenue might still seem less when compared to BTC all-time high (ATH) price in April. However, the price of BTC is dropped nearly 50% from its ATH in April Vs the drop in daily mining realized profitability is just 17%. This simply means that if you only look at dollar realized value, it might seem less but in actuality, you are getting more BTC. And if you are HODLing and BTC price increases in the future your total dollar realized gain would be very high.
While Whit Gibbs, the CEO, and founder of Bitcoin mining service provider Compass expects a 35% increase in miners’ profitability with the current and upcoming difficulty level at the given hash rate, Darin Feinstein of Blockcap, the biggest Bitcoin mining operation in North America says it is not just good for the miner’s revenue but also for bitcoin network decentralization.