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China intensified its efforts to crack down on bitcoin miners this week by putting out a notice that calls for government task forces to “actively guide” in the closure of bitcoin mining operations. (See also: China Curbs Electricity For Bitcoin Miners).
A report in the Wall Street Journal states that the notice calls for an “orderly exit” and does not mention a deadline. It further states that bitcoin mining “consumes a large amount of electricity and also encourages a spirit of speculation in “virtual currencies.” It also characterizes bitcoin mining among activities that “deviate from the needs of the real economy.”
Government officials in China have been asked to wield a policy axe on the cryptocurrency. This means that they will cite or promulgate regulation to limit various aspects of bitcoin mining, including electricity consumption, land use, tax collection, and environmental regulation.
The Importance Of China In The Bitcoin Mining Ecosystem
China plays an important role in the bitcoin mining ecosystem. In the last month, it accounted for 80% of all mined bitcoins. The country offers several advantages to bitcoin miners from cheap electricity to centralized mining operations. Both factors have helped sustain bitcoin’s price. For example, energy bills represent 90% of overall costs for bitcoin mining.
China’s supply of plentiful hydropower and cheap coal have helped power companies optimize their operations during downtime. (See also: Hydropower: The Key To Future Bitcoin Mining?)
Some claim that the centralization of bitcoin mining in the country has led to the development of an efficient hash rate for bitcoin. In turn, this has helped maintain a constant supply of bitcoin and ensured profitability for miners despite rising costs and fees. (See also: 5 Best States For Bitcoin Mining And The Worst.)
Will It Affect Bitcoin Mining Operations?
To be sure, China’s crackdown is not a bolt from the blue. Several prominent bitcoin mining operations have already moved out of the country. For example, Bitmain, the world’s largest bitcoin mining pool, has set up operations in Inner Mongolia. Others are moving to cooler climes, such as Iceland.
According to recent reports, Canada is expected to be a major beneficiary of the shift in Chinese policy. Since the Chinese government has not specified a deadline, it is likely that bitcoin’s price will not experience radically volatile moves due to the development.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin. It is unclear whether he owns other bitcoin forks.