Time to Hash it out
With the new regulations coming down in China, it looks like miners are shutting down their equipment and skipping town. What does this mean for Bitcoin?
Well, China is officially cracking down on Bitcoin miners. The ban means that more than 90 percent of China's Bitcoin mining capacity is estimated to be shut down, at least for the short term.
Most recently, Ya’an, one of the major crypto mining hubs in China’s Sichuan province, is set to shut down mining operations in the city.
The move came on the heels of the crackdown on another hydro-based mining hub, Yunnan province, over the last weekend. Xinjiang, Inner Mongoli and Qinghai have also ordered mining operations to shutter.
What will happen?
Well, when miners shut down this directly effects the hash rate of the Bitcoin network. The good news is Bitcoin will continue to run (because it’s decentralized) - the bad news is that reduction in Hash rate can create volatility or at minimum stagnation with the value of Bitcoin.
In the graph below you can see a massive drop in hash rate just in the past week.
Is this Good News / Bad News?
Well, it’s both. Good news is that this will mean more mining will be done in other locations. One of the negatives of the Bitcoin network was always the dominance of mining happening in China (some estimate over 60%). With this shift, clearly that will be reduced dramatically.
The Bad news is this sets the tone from a major super power willing to give up their dominance of what most consider the future of money. It doesn’t really make sense, considering China was clearly the winner in the Bitcoin race. Why would they give up their position at #1?
This creates a new kind of fear, that will probably effect the price of Bitcoin for the next few months until we see other governments embrace Bitcoin moving forward. In fact, most people are waiting for the U.S. Government (SEC) to approve the first Bitcoin ETF - which would be a strong signal towards accepting Bitcoin into the framework of our economy.
Did China just prove Bitcoin is truly disruptive?
Another way to look at this ban, is that China is scared of what Bitcoin could do to their ability to control their country. By banning Bitcoin, they have given the biggest endorsement it could ask for. It shows they can’t control it and it provides too much freedom to their people (which is not in their best interest).
Opportunity for the U.S.
If the U.S. is paying attention, this could be the biggest opportunity for economic development and future world-domination since they took everyone’s gold back in the 30’s. It’s not often a new asset class comes around that builds real wealth, that both democrats and republicans love, and most importantly mirror the values of our Constitution. And, oh yeah… think of all the money you make taxing the hell out of it.