Bitcoin’s hashrate had a significant tumble in recent weeks, caused primarily by an exodus of miners out of the Chinese regime.
Bitcoin’s reliance on industry-level mining infrastructure and geographic concentration has been thrown into sharp relief by China’s crackdown on miners. In May, the regime announced that it would get tough on crypto mining and trading, notably due to the systemic financial risks that it poses to the autocracy.
However, the country’s crackdown on crypto is not new, rather it’s a reiteration of prior takes on alleged ‘risks’ of digital currency to economic stability.
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For the first time since 2013 (when China began criticising bitcoin), China has decided to enforce existing guidelines, forcing miners to ship their hardware out of the country.
Bitcoin mining relies of industrial-scale mining farms and much of it has been geographically concentrated in China, which accounts for 65% of the global hash rate. The manufacture of custom hardware in China supported this trend, with one in two ASIC miners produced being distributed to Chinese miners. Some analysts have pointed to the crackdown as a source of significant turmoil in the bitcoin markets, while other analysts suggest that miner inventory outflows are at record lows, thereby posing little pressure on the market.
The Bitcoin network’s hash rate has dropped to a yearly low as more provinces direct miners to shut down their operations. Uncertainty about what could happen with the mining hardware (besides being shipped out of China) has been a cause for concern in the industry as the multibillion dollar sector endures the setback.
On the surface, China’s policy on bitcoin is to seek “financial stability and social order”, but is more likely aiming to remove competitors to its own central bank digital currency (CBDC) – which is anything but decentralised and subject to the whims of the regime.
Difficulty Adjusts this week
Still, while the developments have dampened sentiments, the bitcoin network remains anti-fragile and fully operational. However, due to the sudden drop in hashing power transaction times have increased from 10 minutes to nearly 14 minutes as the memory pool backlog soars.
These effects are temporary though as the network has an in-built mechanism which accommodates for both mild and dramatic changes. On July 2nd, bitcoin’s difficulty level will experience its greatest adjustment yet (in accordance with current hashing power) and transaction times will return to normal levels.
On a positive note, it’s likely that the next difficulty adjustment (after Friday) will tick higher as old miners relocate (and switch on their rigs) and new miners capitalise on fresh incentives to secure the blockchain.
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