The Covid-19 coronavirus pandemic has had an affect on many aspects of society and business. The initial sell-off as the global health crisis started to spread has given way to more relative stability in the always-volatile cryptocurrency market, but how will it change Bitcoin? Many seem to think that the Chinese monopoly on the mining of Bitcoin is about to be broken.
A Perfect Storm for Bitcoin Miners in China
When one digs into the situation a little deeper, it seems that the pandemic is just one thing that has impacted Bitcoin mining in China. A Chinese investment securities publication recently announced that 40 mining operations in China were facing closure. The reason for this? Outdated mining equipment. The farms that closed were all heavily invested in the Antminer S9S. That Bitcoin mining rig is no longer profitable.
Electricity rates in China are estimated at between $0.03 – $0.05 per kilowatt-hour. For the outdated mining rigs to sustain a minimal profit the price of Bitcoin has to stay above $5,136. Bitcoin has hovered above that value for quite some time, but mining at the minimum profitability is not a realistic scenario for Bitcoin miners. There are expenses and many individuals to compensate.
The Asian mining rigs suffered a loss of hash power. Many have gone dark as a result. This has opened up opportunities for American miners to make a greater profit. Miners in the West are working with more updated equipment.
How does the Covid-19 pandemic relate to all of this? The answer is that supply chains have been disrupted. This has made it more difficult for individuals in China to obtain new mining equipment. Even Chinese government officials working in the Ministry of Commerce have commented on the difficulty of maintaining and upgrading Bitcoin mining equipment.
Are Bitcoin Miners Leaving China?
China has led Bitcoin mining operations for many years. Geographical, there is a centralization of Bitcoin hash rate in China. This means that China controls most Bitcoin mining. The cost of electricity in China is relatively low compared to other parts of the world. There has also been access to mining rig manufacturers that gives the Chinese miners equipment at a reasonable cost. Getting cheaper mining equipment means that longer periods of use can be justified.
Bitcoin is growing in popularity among investors throughout the world. The cryptocurrency is also being accepted by more governments that are beginning to look at creating their own blockchain platforms and applications. As this happens, some governments may actively seek to increase attraction for Bitcoin mining farms.
In the United States, Internet access and speed is a plus. In Venezuela, the rates of electricity can be used to attract miners. Those who live in Western countries can also have an easier time raising capital than those in other areas. They also have more purchasing power when it comes to obtaining the equipment needed to keep a Bitcoin mining operation in profit.
Another factor could be the ongoing hostility of the Chinese government towards Bitcoin and other types of cryptocurrency. There has been a softening of attitudes in recent months it seems as China begins to develop its own digital currency, but the country still has the ability to stifle the use and active trading of Bitcoin.
An Important Moment in Cryptocurrency History
Many may look back at this time in history as an important moment for cryptocurrency and Bitcoin. As all of these things are playing out in the Chinese Bitcoin mining landscape, there is another major event looming on the horizon. The Bitcoin halving of 2020.
No one knows precisely how the Bitcoin halving will affect the cryptocurrency market. What can be said with certainty is that mining Bitcoin will become more difficult after the block reward halves. That may be the final straw that ends the Chinese monopoly on Bitcoin mining. The good news is that the halving could herald the arrival of a new Bitcoin bull market that investors have been patiently waiting for.
It may also be true that a sudden uptick in the value of Bitcoin would provide the profitability that Chinese mining operations need to stay afloat. In all likelihood, however, the damage is too much to overcome.
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