Bitcoin Network Can Start Recovering with Hash Rate Dumped 50%, Chinese Miners Already Migrated Overseas

Bitcoin hash rate dropped to 91.2 Th/s over the weekend, a level last seen in early November, representing a decline of 47% from its all-time high of 171.4 Th/s on May 13. As of writing, the hash rate is back above 104 Th/s.

As a result, block time has reached above 14 minutes, the same as in mid-April. Difficulty meanwhile is at 19.93 trillion last seen in January, after the recent negative adjustment. Bitcoin mining profitability is still at 0.226 per day for 1 THash/s, at late January levels.

The latest drop came after Bitcoin mining farms in Sichuan were closed on Sunday. Central and provincial government-owned power companies were ordered to immediately stop electricity to crypto mining projects.

Sichuan is 90% renewables powered, and about a year and a half ago, it represented more than 50% of the Bitcoin network.

According to an estimate by the University of Cambridge, about 65% of the world’s Bitcoin mining took place in China as of April 2020.

Some mining farms went down in Sichuan overnight. Quick reactions

– the mining ban appears just as comprehensive as believed
– even hydro powered provinces aren’t being spared
– hashrate transition is real and the nature of bitcoin hashrate will entirely change in next 6-12 mo

— nicolás carretero (@nic__carter) June 19, 2021

According to a Communist Party-backed Global Times report, this closure of so many Bitcoin miners in the province has resulted in more than 90% of China’s Bitcoin mining capacity being shuttered.

Many small and medium-sized Bitcoin mining farms in China, however, haven’t been affected, and neither has Ethereum, Filecoin, and Chia mining.

Additionally, new pools such as Foundry USA launch now account for more than 7% of the global network and have entered the top 10 mining pools list.

Another interesting fact is that Bitdeer, led by Jihan Wu, does not own any mines in China. He foresaw the blow and set up multiple mines in the United States, Northern Europe, and South Asia. He even warned miners not to underestimate the government’s carbon neutral in April.

— Wu Blockchain (@WuBlockchain) June 19, 2021

China’s clampdown helped ViaBTC temporarily become the world’s largest bitcoin mining pool. Its founder Yang Haipo said for over two years, its mining pools and other businesses have begun to resolutely take the international route and de-sinicize.

“Institutional miners had already started migrating overseas from China as early as March,” said Sino Global capital. And expecting more bans came from the officials, “Chinese miners accelerated their process of migration to other countries.”

Kazakhstan AIFC officials are also looking for Chinese miners as they have power facilities with a capacity of 1,685 MW, which can help establish a managed mine within 3-4 weeks. Jonathan Cheesman, head of over-the-counter and institutional sales at crypto-derivatives exchange FTX said,

“Longer term most see hashrate moving out of China as positive but in the near term may have/has already resulted in inventory sales.”

An undervalued point regarding China's crackdown on bitcoin mining here: this is a shockingly huge foreign policy error from a country fighting to become the world's next leading superpower.

The United States can & will take advantage of this, thanks to our 💯 private sector. https://t.co/BRwmDnUdFw

— Jake Chervinsky (@jchervinsky) June 19, 2021

China’ mining shutdown is leading to a real drop in hash rate and may cause a difficulty adjustment and perhaps even slightly slower blocks for a while, “but it's not yet that big relative to the last 3 years (see below). And we'd prefer this to a firewall attack,” said Balaji Srinivasan, former Coinbase CTO, and General Partner at Andreessen Horowitz.

In a separate tweet, Srinivasan noted that Bitcoin mining is actually no longer in the exponential growth phase. He added,

“Hashrate isn't increasing 100X in a year, hardware now lasts longer, opex/capex is more predictable, and tools for bounding risk now exist. So it's easier to mine anywhere.”

China may be leaving Bitcoin, but China also left the free Internet.

— Naval (@naval) June 20, 2021

Charles Edwards of Capriole Investments noted that we are now seeing the worst-case scenario for a China mining ban played out. “The brunt of the force of the China mining bans has been dealt. We are at a point where the network can now start to recover,” he wrote.

The upside here could mean the path to recovery is faster, given that mining is still largely profitable and that this capitulation wasn’t caused by genuine business collapse, said Edwards adding, Miner capitulation usually represents the best buy signals in Bitcoin history.