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Low Supply? China’s Crackdown on Mining Could Lead to Bitcoin Price Surge

Last Updated March 4, 2021 5:03 PM
Joseph Young
Last Updated March 4, 2021 5:03 PM

As Bloomberg and CnLedger have reported, the Chinese government intends to crack down on the cryptocurrency mining industry in the upcoming months. Analysts have stated that the dismissal of miners in China could lead to a bitcoin price surge due to a decrease in supply.

No Ban

According to CnLedger, it is unlikely that the Chinese government will outright ban cryptocurrency and bitcoin mining in the short-term because it is difficult to do so through strict regulations and policies. But, the government has taken the approach of collaborating with local electricity grid operators to provide a more challenging ecosystem for miners. Essentially, the Chinese government is trying to push miners out of the local industry.

CnLedger reported: 

“Caixin: PBoC did not hold a closed-door meeting, nor are they asking to shut down mining fields before a ‘deadline.’ However, the regulators are indeed gradually canceling the preferential policies offered previously in electricity fees, taxes and land to some mining facilities.

YiCai: Regulators are asking local departments to report the current status of bitcoin mining companies under administration, and ‘guide the mining firms to exit in an orderly manner’ by taking various measures from the aspects of electricity, land, tax, environmental protection.”

In an interview with South China Morning Post, one bitcoin miner who requested his name to remain anonymous due to the sensitivity of the subject revealed that there exists corruption within the Chinese bitcoin mining sector and that miners have been paying local grid operators to be able to mine cryptocurrencies.

As such, since November of 2017, Chinese miners have been exploring other potential regions to relocate and migrate their cryptocurrency mining ventures. While southwest China has become a popular destination for miners because of its cheap electricity, other regions such as Norway and Chile have cheaper electricity with naturally cold climates that are optimal for bitcoin mining centers.

CCN.com previously reported, “Cui noted that bribery is common in the Chinese mining scene, as electricity providers have absolute control over their decision to restrict power supply to certain businesses that fail to comply with their demands.”

Decreased Supply

Although analysts have claimed that the decrease in the supply of bitcoin upon the dismissal of bitcoin mining companies by the Chinese government could lead to a price surge, such a situation can only occur in the short-term.

If Chinese miners are forced by the government to give up their operations and move elsewhere, miners will simply relocate to better regions with cheaper resources such as Chile and Norway to continue their mining pools. While the short-term supply of bitcoin could become impacted, in the long-term, it will have minimal effect on the supply of bitcoin.

Also, the plan of the Chinese government is to try to push bitcoin miners out of the local sector in the mid to long-term through stricter regulations and policies. Bitcoin and the cryptocurrency market will likely not be affected by the government’s crackdown on cryptocurrency mining in the next few months.

Featured image from Shutterstock.