The Hashrate Bear: Chinese crypto mining crackdown hits Sichuan and Bitcoin Drops as Hashrate Declines
Bitcoin dropped over the weekend amid a focus on Chinese mine closures and potential regulatory scrutiny. The largest cryptocurrency fell 5.5% to $34,142 as of 10:50 a.m. Sunday in New York, dropping for the fourth time in the past five sessions. Ether, the second-biggest, declined 5.9% to $2,095.
This was due to factors including the hashrate. The hashrate in China is dropping significantly as Bitcoin mines are being closed, Jonathan Cheesman, head of over-the-counter and institutional sales at crypto-derivatives exchange FTX wrote in an email Saturday, citing reports on Twitter from handle @bigmagicdao.
“Longer-term most see hashrate moving out of China as positive but in the near term may have/has already resulted in inventory sales,” Cheesman said.
What is Bitcoin Hashrate?
Mining hashrate is a key security metric. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack. Although Bitcoin’s exact hashing power is unknown, it is possible to estimate it from the number of blocks being mined and the current block difficulty.
Daily numbers (raw values) may periodically rise or drop as a result of the randomness of block discovery: even with a hashing power constant, the number of blocks mined can vary in the day. Our analysts have found that looking at a 7-day average is a better representation of the underlying power.
The hashing power is estimated from the number of blocks being mined in the last 24h and the current block difficulty. More specifically, given the average time T between mined blocks and a difficulty D, the estimated hash rate per second H is given by the formula H = 2 32 D / T.
2021 data forthe global distribution of mining poweris not yet available, but past estimates have shown that 65% to 75% of the world's bitcoin mining happened in China – mostly in four Chinese provinces: Xinjiang, Inner Mongolia, Sichuan, and Yunnan. Sichuan and Yunnan's hydropower make them renewable energy meccas, while Xinjiang and Inner Mongolia are home to many of China's coal plants.
The drawdown in miners has already begun in Inner Mongolia. After failing to meet Beijing's climate targets, province leaders decided to give bitcoin miners two months to clear out, explicitly blaming its energy misses on crypto mines. The Bitcoin hashrate plunged over the weekend following a clampdown on cryptocurrency mining by the southwestern Chinese province of Sichuan.
On June the 18th, an order was issued by Chinese authorities against the country’s beleaguered crypto mining sector which has been the target of regulatory action for several months.
According to bitinfocharts.com, the Bitcoin hashrate plunged to 91.2189 exa hashes per second on Sunday from 112.625 EH/s last Friday. BTC.com data showed that some major China-based mining pools were experiencing hashrate drops. Poolin, for instance, saw a 13.46% decline in its hashrate in the 24 hours up to press time, while BTC.top recorded a 29.35% drop, according to BTC.com.
The Bitcoin hashrate plunge comes as Sichuan last Friday ordered the local unit of the State Grid to conduct inspections and cut power supplies to 26 mining projects. Sichuan is the latest province to be hit by a crypto mining clampdown. Yunnan’s energy authority this month announced a campaign to end unauthorized electricity use in Bitcoin mining. The local government of Changji Prefecture, in Xinjiang, and the governments of Qinghai and Inner Mongolia ordered miners to cease operations earlier this month.
China has recently taken numerous steps to rein in the cryptocurrency sector, which has been involved in an increasing number of scams. The Ministry of Public Security said earlier this month that more than 1,100 people suspected of involvement with predatory scams related to cryptocurrencies and money laundering activities had been arrested.