A comment made in China's State Council meeting about cracking down on bitcoin trading and mining activities has sent shockwaves to local bitcoin miners over the weekend.
While the regulatory hammer has yet to drop officially, the suspension is already driving some bitcoin miners into panic mode. While some have started selling their coins, others are turning to overseas mining facilities.
"In past 48 hours, Chinese miners already started to accelerate migrating process to other countries," tweeted Mustafa Yilham, who leads the overseas business at Bixin, a long-time bitcoin mining firm in China. "There will also be large quantities of Bitcoin mining machines available for sales."
"There will be some enforcement actions in [the] coming weeks. No one knows the level of enforcement action that will be taken at the moment. Uncertainly is creating bearish sentiment among Chinese miners," Yilham added.
Dovey Wan, founding partner of Primitive Ventures, said on Twitter that she has already received messages from local bitcoin miners who intend to sell their machines or ship them overseas. She gave an example of a set of 20,000 mining rigs, mostly AntMiner 319s and WhatsMiner M20s, that are for sale.
So far, China-based mining pool BTC.top — which has about 1.5% of bitcoin's total hash rate — has said its subsidiary mining equipment brokerage business B.top will discontinue serving mainland China-based customers. Crypto exchange Huobi, which also owns a bitcoin mining pool, told The Block in a statement that it will also stop providing the miner brokerage service for new users in mainland China. But its mining pool business remains operational.
On Friday night local time, China's State Council published the notes of a recent meeting hosted by its Financial Stability Development Committee, which mentioned that cracking down on bitcoin mining and trading is part of its upcoming priorities for preventing financial risks. But it remains unclear what exactly the enforcement actions will follow.
Tokens backed by bitcoin's hash rate
The concerns around the potential reduction of bitcoin mining in China, which could lower bitcoin's hash rate, have impacted hash rate-backed tokens too. These tokens are issued by miners and backed by a certain amount of hashing power. Token holders receive mining rewards correlating to the amount of hashing power their tokens represent. They offer a way to get indirect exposure to the bitcoin mining process.
The fluctuation of pBTC35A, the bitcoin hash rate-backed token launched by mining pool Poolin, could be indicative of the bearish sentiment that has spread among the local mining and trading community over the weekend as some large pBTC35A holders have been spooked by the State Council meeting's comment.
The price of pBTC35A was still trading at $102 before the news drop, still higher than Poolin's initial sale price of $100. But since then, it has dropped by over 30% to as low as $69 before bouncing back to $80 as of press time. Over the weekend, the two largest sell orders of pBTC35A on decentralized exchange Uniswap added up to over 6,100 units of the hash rate token, which accounted for more than 2% of its circulating supply.
The holders of pETH18C, Poolin's Ethereum hash rate-backed token, has also experienced a similar sell-off. It's changing hands on Uniswap at $17, down 43% from the initial sale price of $30.
That said, the on-chain staking of pBTC35A for yielding wrapped bitcoin (wBTC) through Poolin's Mars protocol hasn't been affected. In fact, bitcoin's overall hash rate has remained steady at around 143 exahashes per second over the weekend. As The Block reported last week, the three-day moving average of bitcoin's hash rate had already declined since mid-May to around 145 EH/s as of Thursday.
As a result, the Bitcoin network’s average block production interval since the last mining difficulty adjustment on May 13 has been around 11.8 minutes, nearly 20% longer than the intended 10-minute-per-block. That means the mining difficulty adjustment is set to see a significant negative drop when it’s due in about 6 days.
In fact, Poolin said it is already focusing on working with overseas mining farms to distribute its business more globally. This has been part of its business plan at least since its mining conference in April. During that conference, various panelists said China's long-time bitcoin hash rate dominance had already been fading amid the rise of institutional buyers from Europe and North America.
Further, the Xinjiang accident that happened in mid-April forced the majority of the mining farms in the area to shut down their operations for a week, arguably showcasing the instability of the local environment.
Apart from the mining community, the State Council's meeting also had an immediate impact on the overall cryptocurrency market. This particularly affected exchange tokens, with those run by Huobi, OKEx and Binance plunging by more than 30% over the weekend.
The exchange rate between Tether's USDT against the Renminbi on over-the-counter desks is still at a negative premium compared to the exchange rate of the US dollar against the yuan.
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