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Florence Lo/Illustration/Reuters
Blockchain analysis firm Glassnode said a “seismic shift” is underway in Chinese crypto mining as the government continues its crackdown, which is putting pressure on bitcoin firms to liquidate their investments and could therefore drag the cryptocurrency’s price lower.
China is the biggest crypto miner in the world and accounts for around 65% of the bitcoin hash rate production according to the Cambridge Centre for Alternative Finance. The Chinese government has however been cracking down on crypto, and especially mining, as the process is highly energy intensive and interferes with the country’s emissions reduction goals.
This has led to a series of tightened regulations around crypto investing and mining, including ones that forced miners to halt operations last month, and bans on bitcoin mining in some Chinese provinces.
“As the Chinese mining industry comes to grips with the logistical challenges of relocating, migrating or selling their hardware and facilities, some are likely to liquidate a portion of their accumulated BTC treasuries.” Glassnode said in their report, explaining that this could mean some miners pull out of the industry completely.
The hash rate has fallen by 16% over the past two weeks and thereby returned to similar levels to 2020, Glassnode found. At the same time, miners have distributed tokens at a much slower rate over the past two weeks.
Transaction activity has also slowed down. “Bitcoin active addresses have fallen by 24% from the generally sustained peak of 1.16M from March to early May. The current activity of 884k addresses was last seen this time last year.” Glassnode analysis found.
Bitcoin soared in popularity and price at the end of 2020 and has continued to do so throughout 2021. Bitcoin’s price peaked in mid-April at $64,804.72 and has declined around 47.5% since to around $34,000. It’s still up by around 250% compared to where it was this time last year.
It is the largest cryptocurrency by market capitalization, but is also often regarded as the most environmentally damaging. Each transaction or new purchase adds to the blockchain network it is based on – this mining process requires high levels of energy. Critics argue that on top of the consumption, the energy used is often not from renewable sources.
Looking ahead, Glassnode noted that current investor behaviour is similar to that around the bitcoin peak of 2017 – after which the cryptocurrency dropped from close to $20,000 to below $3,000. More recently purchased coins are being traded at a faster rate compared to older holdings – if the latter start moving, this could mean bitcoin is in trouble, Glassnode said. But more time will have to pass before definitive conclusions can be drawn.
“The entire market appears to be waiting for the next move, and few are willing to make the first one.”
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