The behavior of participants in the cryptocurrency market often depends on political and economic factors: the price of crypto assets, the regulations of a particular country or political events. For Chinese miners, however, the factors are somewhat different. For some years now, Chinese mining has been heavily dependent on the weather. While Western cryptocurrency companies fear falling stock prices and regulators, Many mining operations in China depend on rain for survival.
Chinese miners have recently migrated from the southern regions to the north, where electricity prices can go as high as $ 0.01. This migration resulted in an increase in Bitcoin (BTC) hash rate of over 40% in two days. Although migration is annual, the end of the rainy season may not be the only factor this year.
The migration of the great miners
The migration of Chinese crypto miners is a common practice that is mainly influenced by the climate that determines electricity costs. Eddie Jiang, COO and partner in the ViaBTC Group’s mining consortium, told Cointelegraph that April through October In the southern provinces of China there is abundant rainfall, which creates a surplus of hydropower and thus cheap electricity prices.
According to Dejun Kenny Ge, founder of Zhongda Jinfu Finance and co-founder of the Shanghai-based investment platform Dd.finance, he moved from northern China to the southwestern regionsMiners can save about $ 0.18 per kilowatt (1.2 yuan per kilowatt). When the rainy season ends in late October in the southern regions, the price of electricity rises to around $ 0.054 per kWh. At this point, miners are relocating their equipment to facilities in northwestern regions such as Xinjiang, Inner Mongolia and Qinghai, where electricity typically costs around $ 0.05 per kWh.
Low temperatures in the northern regions are another contributing factor to the relocation of Chinese miners from the south. Alejandro De La Torre, Vice President of the Poolin Mining Pool, called this process the “Great Migration of Miners” and stated: “It’s cold in northern China, so mining operations don’t have to spend on cooling mining equipment“.
However, not all miners adhere to this principle. To remain anonymous, a local crypto miner spoke to Cointelegraph about the matter, saying that while China has two mining centers – one in Sichuan Province (southwest China) and one in Inner Mongolia (north), the miners are stronger of Chinese depending on the capabilities of the south. He also noted that many Sichuan miners are now staying at their sites instead of moving north: “Only our mining capacity in Inner Mongolia is currently generating around 20-30% of our total hash rate“.
Isn’t it just the weather this time?
Taras Kulyk, Senior Vice President, Blockchain Business Development at Core Scientific, a provider of digital asset mining infrastructure in North America, showed that Chinese miners have realized that mass migration of units every season is not the most sustainable model.
Some sources claim that Chinese miners are migrating this year not only due to climate change but also tougher regulations in the country and government pressure on cryptocurrency organizations. It was previously reported that the co-founder of the OKEx exchange was arrested by Chinese police. Dejun Kenny Ge of Zhongda Jinfu Finance noted that mining operators in China are hardest hit by the latest and more stringent regulations:
“Due to stricter regulations, many mines in Inner Mongolia that operate under national grids have been closed. Similarly, in the case of Sichuan and Yunnan provinces, many mines have drawn direct electricity from power plants.”
Since 2017, the Chinese government has increased the number of inspections of cryptocurrency farms, many of which have since closed. As Jiang pointed out, every year local governments check compliance with electricity consumption in mining. “”In the case of miners using non-compliant electricity, regulators must make an adjustment until they meet the requirements“Then he added:”This year, some local governments have set compliant power usage, and mining operations can apply to use it for mining. I think this has made further progress in policy monitoring“.
However, few local miners combine the closure of mining operations with stricter regulation. Indeed, changes in the Chinese mining market are to a greater extent linked to inadequate manufacturing capacity of mining equipment manufacturers and the institutionalization of the industry as funds, public companies and private equity firms begin to replace retailers, according to some. According to Jiang, the increase in the number of institutional miners is having a major impact on the operation, maintenance needs and investment decisions of the original miners.
Is the number of miners decreasing?
According to Ge, the mining market is in an era of large operations, greater specialization and funding. Hence, it has become a challenge for smaller mining operations to attract miners, as he told Cointelegraph: “In 2019, China accounted for more than 70% of the global cryptocurrency mining market“However, he added that following the 2019 bear market and the sharp drop in prices in the first quarter of 2020, many miners have left the market with high-consumption oil rigs. Overall,”The sentiment in the Chinese cryptocurrency mining market remains neutral“said.
So far, local businesses have not seen a significant decrease in the number of large mining operations. Some even speak of an increase in production. De La Torre agreed that the number of farms in China and worldwide has increased, adding: “The mining industry in China is not facing any major challenges as we can see from the increase in the global hash rate over the past two years and especially last year.“.
Meanwhile, according to Jiang, The expansion of the mining sector, in turn, is due to the entry of institutions that have established larger mining operations.
Moving to other countries
While local miners say “everything is as usual,” some experts suggest that China could soon lose its mining dominance. Among other things, Ge highlighted the increasing participation of international mining companies and foreign institutions such as Grayscale Bitcoin Trust, which have expanded their long positions in Bitcoin and Ether (ETH): “In the near future there could be an increasingly fragmented and globally distributed market“.
Looking for alternative conditions for the placement of its mining capacities, Chinese miners are now even considering drastic measures like relocating operations to other countries like Kazakhstan or Russia. In an interview with Cointelegraph, a crypto miner from Changzhi pointed out that Russia is one of the most attractive countries for Chinese miners:
“I’ve always wondered how it comes about that China is currently mining about 65% of all BTC and not Russia. I’m really interested in doing business in Russia. We plan to come after the pandemic to see the prospects for Seeing mining in Russia. In fact, many Chinese companies are doing it. “
Other miners appear to be choosing North America, which is becoming a viable option given its stable energy infrastructure, financial resources, and evolving clarity of regulations. Kulyk believes Chinese miners are seriously looking into diversifying their activities by relocating them to North America. He added that Core Scientific is currently working with several Chinese players to move some of their hardware to North America., explained in more detail:
“One of the greatest aspects of North America as an ideal mining environment is that its energy remains stable without significant changes at various stations. Most importantly, the regulatory policy in North America is clear and asset-friendly. Digital.”
Derek Boirun, CEO and co-founder of the peer-to-peer trading platform Realio, and Bitcoin mining pioneer Marshall Long shared the opposite opinion with Cointelegraph:
“Chinese miners are not happy moving to the US for cheaper energy because of political instability. However, the contacts miners can make are able to get cheaper energy prices in the US. They are uncomfortable with doing business in the US Chinese-owned as all regulatory measures have been taken against China recently. “
It therefore seems that one cannot speak of large-scale migrations in the short term. However, the local miners do not intend to leave the market en masse and it seems that they have already envisioned various work scenarios to continue their business. In response to coal-fired power plant closures, Chinese miners have started hooking up to hydropower plants, moving to colder regions at the end of the rainy season, and dealing with rising electricity costs with cheaper equipment. .