On Monday, May 24, it became known that some mining companies began to stop activities in China due to calls by local authorities to tighten regulation of mining and trading of cryptocurrencies. Cryptocurrency exchange Huobi temporarily suspended service to clients from mainland China. Experts explained whether miners will continue to leave China and how this will affect the entire industry.
Fear of Uncertainty
So far, the mining industry has been less regulated than other cryptocurrency sectors, said Vadim Krutov, CEO of blockchain company Bitfury. The industry has grown considerably in recent years, he said, forcing regulators to pay more and more attention.
"More than half of the world's mining capacity is concentrated in China, so the increasing regulatory attention is not unexpected," the expert said.
Most likely, miners fear not the regulation itself, but uncertainty, as market players often don't know what to expect from the regulator, Vadim Krutov said. He notes that miners are forced to move to more predictable jurisdictions because of the cautious attitude of the Chinese authorities to the industry.
The migration has already begun
Co-founder of data center LAZM reminded that miners began to relocate to other countries after prohibition of cryptocurrency mining in Inner Mongolia province of China was announced. According to him, mining companies have hundreds of millions of dollars at stake, so it would be too rash a decision to take a risk and hope that it will not affect their work. The expert believes that the migration of miners from China will continue further.
"It is quite logical that miners are looking for new locations, especially since many countries offer favorable conditions for placing data centers on their territory. In Kazakhstan, Russia - and electricity prices can be found very favorable," added Roman Nekrasov.
We have seen a steady trend of reducing the share of China for several years, this movement will continue, Vadim Krutov believes. He noted that there are more institutional investors in the market who are used to working in traditional institutional capital jurisdictions, such as the U.S., where the amount of inexpensive "green" energy from renewable sources is constantly increasing and the rules of the game are perceived by investors as more predictable.
Implications for hash rates
The migration of mining companies from China may result in a temporary drop in the bitcoin network's overall hash rate, but this will be made up for fairly quickly by the addition of new equipment, according to the CEO of blockchain company Bitfury Russia. He explained that over the last six months there have been over $1 billion worth of transactions with more than 40 EH/s of aggregate processing power in the public part of the market alone. All this equipment continues to stay online, increasing the complexity of mining, the expert added.
There will obviously be a rebalancing of the distribution of mining capacity in the world, the co-founder of the LAZM data center explained.
"In some ways, it will even serve the good of decentralizing the bitcoin network. The mining centers will be more distributed across different regions and will not be concentrated in China," he added.
Market reaction
May 23, bitcoin price fell to $31 thousand on May 24, the price of the main cryptocurrency is $38.4 thousand amid calls for a tougher policy against mining in China. Bitcoin may react with another decline because of some sharp statement of the Chinese authorities on the ban on mining, admits Roman Nekrasov. However, then the main cryptocurrency will win back this fall, as miners will stop working in China, but will try to run new enterprises in other, more friendly jurisdictions, the expert said.