The price could spike again.
The Chinese government will end bitcoin mining operations in the coming months, Bloomberg reported over this January, a move that could have a massive impact on the price of the world’s biggest digital currency.
China has been a central player in the development of bitcoin in recent years, but Beijing has spent the last six months cracking down on the cryptocurrency industry — shutting down local exchanges and banning initial coin offerings.
Leaked documents suggest the Chinese government plans an “orderly exit” for bitcoin mining operations in the coming weeks and months.
In the documents, issued to the local offices of the internet-finance regulator, authorities were instructed to force mining operations out of business using measures linked to electricity pricing, land use, tax and environmental protection.
Bitcoin mining is the process of solving complex mathematical equations in order to verify and record transactions on the blockchain, the distributed ledger that underpins the currency.
Verifying those transactions earns miners bitcoin.
Thanks to cheap electricity, China has in recent years become a major hub of mining, accounting for around 70 percent of the bitcoin mining network.
As such, a blanket ban on operations could have a big impact on the price of bitcoin. With fewer miners on the network, the difficulty of mining bitcoin would go down, meaning less power would be required, which could have a negative impact on the price of bitcoin.
It may also have an impact on transactions times. Chinese miners have been keen to limit the number of transactions processed per block, but if they are not voting, miners elsewhere can increase the amount of information sent per block, which should improve transaction times, and drive fees down.”
The documents suggest the decision to ban mining was taken in November. It’s an unsurprising move given that Pan Gongsheng, deputy governor of the People’s Bank of China, recently predicted the death of bitcoin.
Some of China’s mining operations are already looking to relocate overseas, but the process will take time and will inevitably lead to lower margin, since electricity prices outside China are much higher.
Russia could be in a position to capitalize given it also has cheap electricity prices. Moscow recently launched a plan to capture one third of the bitcoin mining network from China.
Correction: An earlier version of this article stated that removing China’s mining network would likely slow the supply of bitcoin and increase the price. In fact, the supply of bitcoin would be unaffected and the price could be negatively impacted.