China started the decline in BTC price and miners releasing additional supply into the market further put pressure
S9-Antminer rigs no longer profitable, so the old machines need to get a shakeout. Miners are easy to regulate and provides tax revenue benefit unlike crypto exchanges that helped fuel speculation and capital flight in China
What is behind the 15% drop in Bitcoin price?
According to several commentators, it is China. CNBC’s Brian Kelley claimed China cracking down on crypto trading is what got this bloodbath started and then some miners getting capitulated did the job further.
Economists and trader Alex Kruger also tweeted.
— Alex Krüger (@krugermacro) November 22, 2019
However, analyst Mati Greenspan believes we are just looking for a “scapegoat.” This is because even though it has been promoting blockchain technology, China hasn’t reversed its stance on crypto trading.
PBoC’s latest move against crypto trading has people “downright scared”. This can be seen in the Crypto Fear and Greed Index that is signaling “extreme greed” for the past few days as BTC price today fell to $6,515 level.
Miners Releasing Additional Supply into the Market
Greenspan in his newsletter on Monday said China news is only half the story. He pointed out that much of the crypto community on social media are long term BTC hodlers who “won’t necessarily be knocked off their positions by FUD.”
The other half of the story is the miners releasing additional supply of their BTC stash, stored during the bull run in the market. Just this morning, Dovey Wan, founding partner of Primitive Crypto in an interview with BlockTV shared that 50% of the current hash rate is contributed by S9-Antminer rigs and they are no longer profitable.
This year, the hash rate of the Bitcoin network has also increased significantly, making an all-time high in late October. This “unprecedented growth” Greenspan says is for the most part because of advances in ASIC technology. As new rigs come online, the hash rate has grown, Greenspan continued,
“what we’ve yet to see, or may be seeing at this moment, is a shakeout of the old machines. Let’s just hope it doesn’t lead to a price war,”
Bitcoin mining profitability calculator, Source: CryptoCompare
Bitcoin Mining Works in Regulators’ Favor
When it comes to mining, China dominates with 70% of global bitcoin mining operations. And in late October, in a surprising move, China’s economic planning agency removed crypto mining from its list of activities set for being banned or eliminated.
This decision reportedly left many miners confused about the central government’s stance on cryptocurrency. However, it doesn’t mean there would be “a wild growth of mining farms,” said Wang Hongyi, who manages mining machines in the provinces of Sichuan, Shaanxi, Xinjiang, and Inner Mongolia. Miners he said think:
“very far ahead in the future and [believe] this type of business will come under regulation.”
They are actually expecting the electricity fees to rise because
“once the government regulates it, they will want the fee to cover construction and fire services, etc.”
But while it will increase the cost of operation, it will make it easier for miners to work with governments, Wang said.
Taking a look from the regulators’ side, cryptocurrency exchanges have been bad for them because they helped fuel speculation and capital flight whereas mining can provide tax revenue benefits, Martin Chorzempa, a research fellow from Peterson Institute for International Economics shared his views with the South China Morning Post. He said,
“My sense was always that they [miners] are easier to regulate because they run on physical hardware in China and you know who won each block and how much that is worth because that is all public information.”