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Crypto Mining, Cryptocurrency, Featured

Crypto Mining Uptrend and the Shift from China’s Mining Hub

Bitcoin recently experienced a mining uptrend of 42 percent hash power, indicating the seasonal migration activity of the Chinese miners. On the other hand, there has been a significant movement by miners beyond China which is considered as the crypto mining hub, indicating that the mining activity might be branching out to other geographies gradually. 

In China, mining activity has always been a seasonal thing. For years, the crypto mining operation in China has been heavily reliant on climate, notably the rainy season, because the rain reciprocates in the cheap hydroelectricity. Chinese miners migrate each year from the southern provinces to the northern regions, where electricity rates get as cheap as $0.01. This migration is the reason behind the recent surge in BTC mining. While migration is an annual affair, the closing of the rainy season might not be the sole factor for the recent uptrend. 

The migration of crypto miners in China is a common activity that is determined by climate and electricity costs. Every year, usually from April to October, the southern provinces of China experience ample rainfall, which generates surplus hydropower leading to subsequent low-cost electricity. It is during this time of the year, that the miners migrate from the north to the southwestern regions, allowing them to save up to $0.18 per kilowatt of power. Around late October the rainy season comes to a close, causing the electricity rates to shot up at $0.054/kWh. By that time the miners, migrate back to the north-western provinces namely Qinghai and Xinjiang, where the cost of electricity goes up to $0.05/kWh.

Other than the rains, the comparatively lower temperatures in the Northern provinces of China also contribute to the migration of miners from the south. Nevertheless, there is no strict adherence to this activity among the Chinese miners. However, there is no strict adherence to this principle by all the miners in the region. Notably, there are two mining hubs within China, out of which one is located in the Sichuan province in the southwest and the other in the North in Inner Mongolia. Among these two regions, the Chinese miners tend to depend more on the southern region. In recent times, a significant number of Chinese miners are choosing to stay in the Southern provinces rather than moving to the Northside.

The Change in Mining Migration Patterns

Over the years, Chinese miners have realized that mass seasonal migration is not the most preferred or most sustainable model. There are some sources that have claimed that climate change is not the sole reason behind the migration of Chinese miners this year. There are speculations that the recent tightening of the regulations and increasing pressure on the cryptocurrency enterprises by the Chinese government can be a reason. The mining facility operators have been hit hard by the tightening of regulations by the government, which if it persists can push the miners to cross the borders. 

Post-2017, the government has increased the inspections conducted at cryptocurrency and mining farms and it has intensified over the last few years, leading to the closure of a lot of farms. The authorities inspect the mining compliance and electricity consumption due to that every year. The ones that are non-compliant to the electricity compliance are needed to rectify their ways or accept the closure of activities. 

Also Read: Will Bitcoin Price Hit $50,000 in 2021?

However, that is not the sole reason behind the change in the mining operations in China. Some refer to it with the inadequate production capability of manufacturers of mining machines, not to mention the gradual institutionalization of the sector, with listed enterprises, funds, and private equity firms that have started to replace the retail miners. The increase in the number of institutional miners has significantly impacted the mining operation and investment choices of the traditional crypto miners.

Experts have pointed out that the crypto mining market is commencing large-scale operation, with increased finances and specialization, making it increasingly challenging for the smaller mining facilities to attract more or new miners. In 2019 market reports showed that China held more than 70% of global crypto mining activity. But, following 2019’s bear market and the price crash in the starting of 2020, a significant number of miners stopped their mining activity, which has made the Chinese mining market to switch to a neutral mode. 

Miners Migration to Other Geographies

Although there are no signs of the larger mining farms to close operations any time soon, the smaller ones are in a tricky situation, which may lead them to locate to other geographies. Some crypto experts have already predicted that China might soon lose its status on being the global crypto mining hub. The cause for that can be found in the rapidly increasing international mining activity. Chinese miners have been looking for alternative geographies to establish and continue the mining operations and have been considering the regions of Russia or Kazakhstan. 

There are also a significant number of miners who are keen on moving to North America, which is known for its steady energy infrastructure and financial resources, not to mention an evolving regulatory clarity as opposed to China. The only hurdle that stands in the way of that migration is the political instability that has been plaguing the USA for quite some time now. However, there might be some semblance of hope with the new administration taking hold of the reigns next year. One has to wait till then to see whether is China is able to retain its title of being the crypto mining hub of the world. 

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