A mountainous province with affluent hydropower in central China, Sichuan, abruptly cut out power supply to crypto miners last month. Dubbed as China’s “mining capital” by crypto enthusiasts, the province used to attract miners with inexpensive electricity, and once accounted for nearly 10% of the global hash rate.
However, the shutdown changed all that. The price of the most-popular cryptocurrency Bitcoin dropped 5.5% in one day. In the course of two weeks, Bitcoin’s global processing power plummeted over 30% compared to its peak in mid-May, according to blockchain.com.
From Inner Mongolia to Xinjiang and Yunnan, domestic Bitcoin miners have already been expelled by tightening financial and environmental policies, and have scattered around in the country. Sichuan was their last safe haven, but the power shutdown shattered their hopes.
The Warning Signs
On the blackout day, a short video circulating on Weibo showed that workers were turning off the lights on the mining racks, disassembling rigs, waving the buzzing machines goodbye.
“This might be the end of an era,” a Weibo user commented.
But the warning signs already showed in early May. China’s central bank and other watchdogs collectively announced that crypto is not the legal currency, and banned all financial institutions from providing crypto-related transaction and trading services.
The government then decided it was crucial to curb both trading and mining only three days later. Inner Mongolia, Qinghai and Xinjiang followed suit and shut down most of their electricity-hungry mining factories.
The sweeping clampdown continued. KOLs of the industry were censored on social media platforms. OKEx, Binance and other related keywords were blocked by search engines. Online payment giant Alipay and commercial banks announced that they will prohibit any crypto-related transactions.
However, some miners in Sichuan did not, or did not want to believe it would affect them, Chinese media BlockBeats reported. The mountainous province has plenty of hydropower, and unlike in Inner Mongolia and other places, miners there do not need to burn coal to keep the machines running. They thought the environment-friendly advantage might help them dodge the bullet.
Others did realize the policy change was on a whole other level, a miner said in the retrospect. “In fact, Inner Mongolia mentioned ‘preventing financial fraud’ in the documents, so shutting down the mines has nothing to do with what kind of electricity you use.”
Sichuan‘s regulation came into effect on June 20th, and the very first beginning of the documents reads: “It is to meet the government’s requirements for cracking down on Bitcoin mining”. At least 26 major mining companies in the region had their power cut off by midnight.
State-run media Global Times on Tuesday blasted again that the cryptocurrency disrupts the market, violates laws and harms the country’s financial security.
“Bitcoin can only be in the underground,” it commented. “China will force the illegal business out of the country.”
Faced with mounting pressure from the government, some miners have chosen to go overseas to find shelter. Central Asia and North America, which can provide power-hungry mining machines with cheap electricity, have become their go-to choice.
BIT Mining, a US-listed Chinese mining company announced last Monday that they delivered the first batch of mining machines to Kazakhstan, and will send the second and third batch, totaling 2,600 mining machines to the neighboring country before July 1.
It is important to be agile amid the globally evolving regulatory environment, the CEO of the company noted in the announcement. Other key players like Canaan and BitDeer are also expanding their business overseas.
On the other side of the world, Miami, with its crypto-friendly mayor and inexpensive nuclear power, is also trying to capture the attention of potential Chinese investors. CNBC reported that the local government is considering incentive mechanisms including tax cut and subsidies to miners.
But the risk of going west is unpredictable, and not everyone can afford the costly shipping fees or have the connections to start everything from scratch. “Many small business owners don’t want to, and cannot afford to go abroad. Some of my friends who went abroad got deceived by foreigners and have their mining business suspended. There is no way to guarantee our personal safety,” industry watcher Wu Blockchain posted an interview on his blog.
Some were forced to sell up and give up the business. On China’s used goods platform Xianyu, small-scale miners are seeking a takeover. Mining rigs, case racks are all at a bargain price. Comments read: “It could be cheaper”.
“Mining machines are now as cheap as rusted metal,” Mike Huang, the owner of a crypto mine in Sichuan told BBC. Another miner said that in April and May, the price of a mining machine was about 4,000 yuan, but now it is only around 700-800 yuan.
Mining rigs makers also suffered from the panic. Bitmain, the world’s biggest manufacturer of Bitcoin machines, reportedly told the local mining community last week it has stopped selling new equipment.
A Changing Landscape
The crypto frenzy continues, and some enthusiasts still hold strong faith in it. “Mining now slows down and the supply amount drops, but I think it’s actually a good thing in the long run. The price will bounce back as long as there’s demand,” a Chinese investor who asked to stay anonymous told Pandaily.
Some crypto companies are indeed expanding and actively hiring with hundreds of new employees, Bloomberg reported. “We see the industry growing exponentially on a year-to-year basis, and we need to scale our team to cope with it,” Binance CEO Changpeng “CZ” Zhao said.
Despite the market being resilient, apparently China does not want to be the center of crypto mining anymore. The energy-intensive industry is at odds with its ambitious pledge to become carbon neutral by 2030 and the goal to reduce coal use. Furthermore, crypto could also be an obstacle to China’s own national digital currency.
But the crackdown also opens new doors. People now do not need to be afraid that China would mine all the Bitcoins, the head of a Toronto-based cryptocurrency firm said. “Everyone who is not in China looks at this as an opportunity to capture a greater piece of the pie.”