Finding a new home: Bitcoin miners settling down after China exodus

The news of a mass exodus from China of miners from China shook the crypto industry a few months back. It was discovered that the Chinese authorities had plans to ban Bitcoin (BTC), which would increase the regulatory pressure on miners.

This list includes buying cryptocurrencies and any related investment activities, trading, or exchange. After extensive consultations with banks, payment systems and financial institutions in China, the Peoples Bank of China advised that the largest Chinese financial institutions should stop any speculative trading with BTC.

Bitcoins hashrate saw one of its largest drops in history. Chinas share in BTC mining fell 55% from the start of the year as many Bitcoin network participants shut down their equipment.

As Chinas secondary market was flooded with GPU cards, this was confirmed. Card sellers were selling cards at lower prices, including the powerful GeForce RX 3090 and Radeon RX6900 XT.

However, not all miners gave up, especially those in large numbers. The only way out was to “mine migration” to other countries. What countries are the best places to mine in the future?

Are mining and other activities really bad for China?

Before you try to figure out where miners are going, its worth understanding why China banned mining and the implications of this decision on crypto industry and other sectors of the Chinese economy.

The largest mining pools were among the first to respond to the ban. BTC.TOP, Huobi and HashCow all stopped their operations in part or whole. Huobi, one of the most important crypto exchanges in China, has suspended crypto mining as well as trading services to new clients from mainland China.

BTC.TOP, a mining company, announced that it would suspend its operations in China due to risks. HashCow, however, has stated it will no longer buy new BTC mining stations.

Bitmain, the largest manufacturer of Bitcoin mining equipment, suspended sales temporarily at the end June 2021. After prices fell by 75%, Bitmain made the decision to suspend sales. BTC miners were not affected by the suspension, but Bitmain is still selling altcoin mining equipment.

The Chinese government stated that the main problem with mining was the excessive consumption of electricity. China, the country that was home to the majority of BTC mining pools, mainly relies on coal power which causes a lot of pollution.

Some crypto industry commentators believe that the Chinese authorities were not trying to protect the countrys ecology, but rather to promote their own cryptocurrency, digital yuan. In other words, by banning BTC miners, the Chinese government “clears the space” for its central bank digital currency (CBDC).

The digital yuans development is now in full swing. The digital yuan was available to Beijing subway riders at the end of June 2021. Two weeks earlier, the Agricultural Bank of China had become the first bank in China to allow clients to convert digital yuan to cash.

The government seems to actively suppress competitors to the CBDC. The Chinese authorities feared that Alipays payments system would be a threat to the digital Yuan and prevented Ant Financials initial public offering in 2020.

Is it possible that miners were collateral damage in the countrys quest to support the widely-used digital currency? The latest crypto ban didnt prohibit anything new; existing restrictions had been outlined in 2017.

New mining centres

China, which used to mine three quarters of all BTC, began to decrease its participation in global mining well before Mays prohibitive measures.

The Cambridge Centre for Alternative Finance conducted research on global Bitcoin mining between September 2019 and April 2021. It found that China was becoming less attractive for crypto enthusiasts. This is a sign of the governments strict policy. However, the countrys Bitcoin mining share remained high at 46%. According to Fei Cao (CEO of Huobi Pool), however,

“This years key trends in digital mining include increased compliance and capital requirements. These trends are more promising in North America, where mining is legal according to local regulations.”

Statistics show that the United States has more than quadrupled the amount of world mining BTC it holds, from 4.1% to 16.8%.

The U.S. has been increasing its hosting capacity over the years long before the Chinese ban. This was even during a time when crypto markets were in serious decline. For example, the U.S. mining companies were active in 2017 when large BTC farms werent in high demand.

The United States also has the most affordable energy sources, many of them renewable. American investors are also interested in working with miners. A recent meeting in Texas saw U.S. oil-and-gas executives suggest that miners make use of surplus natural gas to produce electricity.

Large manufacturers of mining equipment find cheap electricity attractive. Bitmain, for example, entered into a partnership with Foundry, a subsidiary of Digital Currency Group, in 2020. Foundry provides funding to Bitmain clients in North America and supplies large quantities of mining equipment for BTC.

This year, Kazakhstan saw a strong increase in its Bitcoin mining market share — going from 1.4% up to 8.6%.

Because this country borders China, it is much cheaper to transport equipment than to ship it across the ocean from North America. In Kazakhstan, the law allows local banks to open accounts to facilitate cryptocurrency transactions. A mining company can also be registered in Kazakhstan since digital currency was legalized in 2020.

This has already been taken advantage by Chinese companies. Canaan, a large cryptocurrency miner, announced that it had begun mining BTC in Kazakhstan in June. BIT Mining, a crypto mining company, recently announced it would expand its operations from China. It plans to purchase 2,500 BTC miners to deploy in Kazakhstan. Experts estimate that about 4,000 mining equipments were sent by Chinese miners to Kazakhstan.

Related: Slow to begin: Crypto regulators trail blockchain industry

A key factor in Kazakhstans popularity for miners is the low electricity prices. 1 kilowatt costs $0.03. The countrys energy system, however, is not as large as that of the United States.

Russias share of global mining has increased to 6.5%. Russia shares a border with China like Kazakhstan. This makes it convenient for transporting mining equipment. In July 2021, the Russian Association of Crypto Industry and Blockchain RACIB highlighted the benefits of mining in Russia and highlighted the abundance of cheap electricity.

Due to the countrys varied climate, mining farms may be located in areas with colder climates. This will lower cooling costs and maximize expected profits.

RACIB also entered into a partnership deal with a group of Chinas largest mining companies. This consortium had previously controlled 25% of Bitcoins hashrate.

Mining will continue, miners will leave.

Six months less than the Chinese ban, miners found a new home. Perhaps even better than the one before that, and Bitcoins hashrate is predictably recovering.

Chinese miners wont disappear, but their locations will change. Cao stated that the BTC mining industry is currently going through a transformation due to changes in policies and regulations all over the globe.

“The industrys outdated mining machines have been retired. However, newer, more advanced mining machines will be introduced on the market to replace the shortage.”