Source: Quxiang Finance

Summary

• Hashrate Index data shows that China's Bitcoin mining market share has rebounded to third place globally.
• The softening of Beijing's policy stance and low electricity prices attract crypto miners back.
• Analysts say Bitcoin is viewed as a strategic asset amid the backdrop of US-China tensions.

Reuters, November 24 - Data from miners and the industry indicate that despite being banned four years ago, Bitcoin mining is quietly making a comeback in China. Individual and institutional miners are taking advantage of low electricity prices in some energy-rich provinces and a surge in data center construction to resume operations.

Before the Chinese government banned all cryptocurrency trading and mining in 2021, citing threats to national financial stability and energy security, China was the world's largest cryptocurrency mining country.

According to the Hashrate Index, which tracks Bitcoin mining activity, after the ban caused China's global Bitcoin mining market share to drop to zero, it has quietly rebounded to third place by the end of October, accounting for 14%.

The revival of Bitcoin mining activity—also supported by a rapid rebound in sales for mining machine manufacturer Canaan Creative (CAN.O) in China—could provide demand and price support for the world's largest cryptocurrency.

Mr. Wang, an individual miner from Xinjiang, stated that he restarted his mining business in this energy-rich autonomous region at the end of last year.

"Xinjiang has a lot of surplus electricity that cannot be exported, so we use cryptocurrency mining to consume it locally," said Mr. Wang, who only revealed his surname. "New mining projects are under construction. You could say people will always choose places with low electricity prices for mining."

Neither the National Development and Reform Commission of China, which issued the 2021 ban, nor the Xinjiang government responded to Reuters' faxed requests for comment.

Resurgence of Mining Activity

Beijing's crackdown on the industry in 2021 led miners to shut down domestic operations and shift to overseas markets in North America and Central Asia.

The revival of Bitcoin mining coincides with the digital asset reaching an all-time high in October, driven by former President Trump's supportive policies for cryptocurrencies and growing skepticism towards the US dollar, making cryptocurrency mining more profitable.

However, as global risk appetite has weakened, this cryptocurrency has fallen about one-third from its October peak.

Patrick Gruen, CEO of cryptocurrency market infrastructure provider Perpetuals.com, stated, "When economic incentives are strong in certain regions, China's policies tend to show flexibility. The resurgence of mining in China is one of the most significant signals the market has seen in years."

He noted that China has not formally relaxed restrictions on Bitcoin mining, but "even signs of a loosening of Chinese policy could support the narrative of Bitcoin as a global, anti-regulatory asset," citing data that shows a revival in industry activity.

Miners and mining machine manufacturers revealed that Bitcoin mining—a high-energy process that involves solving complex mathematical problems with specialized computers to earn Bitcoin—is particularly active in inland areas rich in electricity resources, such as Xinjiang.

Duke Huang, a miner from Sichuan who exited the mining industry years ago due to Chinese regulatory bans, mentioned that some friends have recently returned to the business: "This is a sensitive area… but those who can access cheap electricity are still mining."

In addition to the rising Bitcoin prices, a source from a Bitcoin mining machine manufacturer indicated that some financially strained local Chinese governments' over-investment in data centers has led to excess electricity and computing power, which has also driven the industry's revival. Due to the sensitivity of the situation, the source requested anonymity.

Cryptocurrency Policy Dynamics

Sales data from mining machine manufacturers also corroborate this trend.

Documents from Canaan Creative, the world's second-largest Bitcoin mining machine manufacturer, show that 30.3% of its global revenue came from the Chinese market last year, while this figure dropped to just 2.8% in 2022 following the crackdown.

According to an insider who wished to remain anonymous, China's contribution to Canaan Creative's sales surged to over 50% in the second quarter of this year. The individual requested anonymity due to lack of authorization to speak to the media.

Canaan Creative did not confirm the sales details for the second quarter but attributed its sales growth in China to three factors: uncertainty in US tariff policies affecting US sales, rising Bitcoin prices enhancing mining profitability, and a subtle shift in China's attitude towards digital assets.

The Singapore-based company stated via email that its business has always fully complied with Chinese regulations but declined to comment on China's mining policies.

"In China, the research and development, manufacturing, and sales of mining machines are allowed," Canaan Creative stated.

The resurgence of Bitcoin mining activity in China coincides with signs of a softening stance from Beijing towards digital currencies. Digital currencies were once seen as a challenge to the fiat currency system and fueled capital flight.

For instance, Hong Kong's stablecoin legislation took effect in August, allowing the city to compete with the US in cultivating a regulatory market for cryptocurrencies backed by fiat currency.

Reuters reported in August, citing informed sources, that China is also considering allowing the issuance of stablecoins backed by the renminbi to promote the global adoption of its currency, keeping pace with the US's advancements in the stablecoin sector.

"Bitcoin mining is still explicitly banned in China, but in fact, a significant amount of computing power continues to operate," said Julio Moreno, research director at blockchain data and analytics firm CryptoQuant.

CryptoQuant estimates that currently, 15%-20% of the world's Bitcoin mining computing power is located in China.

Liu Honglin, founder of Mankun Law Firm, stated that it is challenging to completely eliminate a profitable business.

"I personally believe that government policies targeting mining will gradually loosen because you cannot completely stop such activities."

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