LATOKEN experts: How events in China could affect mining

Cryptocurrency mining companies have already begun to leave China due to the tough stance of local authorities regarding digital assets. Will this trend continue, and how can it affect the entire industry in the future? LATOKEN experts will try to figure it out.

On May 24, it became known that some mining companies began to stop activities in China due to calls from local authorities to tighten regulation of the mining and trading of cryptocurrencies, and the Huobi crypto exchange suspended services to customers from mainland China. Let’s try to figure out if miners will continue to leave China and how this will affect the entire industry.

Fear of uncertainty

Until now, the mining industry has been less regulated compared to other cryptocurrency sectors. The industry’s size has grown significantly in recent years, forcing regulators to pay more and more attention.

More than half of the world’s mining capacity is concentrated in China, so the growing attention of the regulator is not unexpected.

Most likely, miners are not afraid of regulation itself, but of uncertainty, since often, market players do not know what to expect from the regulator. The wary attitude of the Chinese authorities towards this industry is forcing miners to move to more predictable jurisdictions.

The migration has already begun

Miners began to relocate to other countries even before it became known about the likely ban on the mining of cryptocurrencies in the Chinese province of Inner Mongolia. Mining companies have hundreds of millions of dollars at stake, so it would be too rash to take risks and hope that this will not affect their work. Most likely, the migration of miners from China will continue further.

It is quite logical that miners are looking for new locations, especially since many countries offer favorable conditions for placing data centers in their territories. In Kazakhstan, as well as in Russia, electricity prices can also be very good.

There has been a steady downward trend in China’s share for several years now, and this movement is likely to continue. Do not forget that more and more institutional investors are appearing on the market, who are accustomed to working in jurisdictions traditional for institutional capital. A good example is the United States, where the volume of not very expensive green energy from renewable sources is constantly increasing, and investors perceive the rules of the game as more predictable.

Hashrate implications

As a result of the migration of mining companies from China, the total hash rate of the bitcoin network may temporarily sink down; however, most likely, the decrease will be quickly filled by connecting new equipment. Obviously, there will be a rebalancing of the distribution of mining capacities in the world.

It will even serve to the benefit of decentralizing the Bitcoin network. Mining centers will be more distributed across different regions and will not be concentrated in China.

Market reaction

Against the background of calls for stricter mining policies in China, the value of bitcoin fell to $31,000 on May 23. On May 24, the price of the leading cryptocurrency was $38,400.

The bitcoin rate may once again react with a decline due to some harsh statement by the Chinese authorities about the prohibition of mining. However, then the main cryptocurrency will likely win back this decrease, as miners will stop working in China but will try to launch new enterprises in more friendly jurisdictions.

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LATOKEN crypto exchange does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Like other assets, cryptocurrency is subject to market risk. Please do your own research and trade with caution.

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