The government of the Chinese province of Sichuan plans to eradicate Bitcoin mining (BTC) from the territory, claiming that the ever-increasing price of cryptocurrency has led to a proliferation of scams and other illegal activities.

In Sichuan, 10% of the world’s hash rate is produced.
According to estimates by the University of Cambridge, Sichuan accounts for almost 10% of the global hash rate. This means that more Bitcoins are generated in a single Chinese province than in the United States or Russia.

China, University of Cambridge Bitcoin Mining Map. Source: Cambridge University.

Recently Sichuan has attempted to attract crypto currency miners to the territory in order to counter the economic recession caused by the coronavirus epidemic. However, this initiative has led to the emergence of several fraudulent schemes and illegal fundraising.

What will happen now?

It is difficult to say whether, through these new directives, Sichuan will actually succeed in extinguishing BTC mining. Indeed, there is a thriving crypto community in China despite numerous government constraints.

Christopher Bendiksen, Head of Research at CoinShares, commented:

„I don’t think Bitcoin miners in China have ever been, you know…

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really quiet. They don’t feel safe and confident about their ownership rights. Because, you know, one day the government might show up and seize all their stuff.

That’s why I doubt they’ve ever really felt comfortable. And now the situation is even worse.“

What would happen if the authorities got serious this time and drove Bitcoin mining out of Sichuan? Where would these companies go?

Headed west?

Philip Salter, Head of Operations at Genesis Mining, said:

„A characteristic of China… is that production costs are low. Capital expenditures are very low, everything in China is cheap and fast.

But operating costs are not […] so low because much of the country is powered by coal, which is the most expensive energy source. So in reality the operating costs are not very good in China.“

It is likely that the most stable and successful miners will be able to move their equipment to other Chinese provinces. We are also seeing a trend towards the West in the industry, probably due to the greater political stability of Europe and the United States: Bitmain, a well-known Chinese mining giant, recently built a 50 megawatt farm in Texas.

The recent halving of Bitcoin has also increased pressure on miners, who have abandoned the network or started to sell many more BTCs in order not to make a loss.