Chinese miners are selling out or seeking new markets overseas after local governments in mining hubs in China imposed sweeping bans on cryptocurrency mining.
“Many miners are exiting the business to comply with government policies,” said Mike Huang, operator of a crypto mining farm in the southwest province of Sichuan, which is China’s second leading Bitcoin mining center after Xinjiang in northwestern China.
The bans have caused a massive slump in the prices of crypto mining machines (rigs), which are used for verifying virtual coin transactions in a process that produces newly minted cryptocurrencies such as Bitcoin.
A machine that was priced around 4,000 yuan ($620) last April and May before Beijing announced a crackdown on crypto mining, can now be bought for as low as 700 to 800 yuan, according to a Sichuan miner.
Bitcoin prices have also taken a hit as global investors worry about disruptions in a previously large market. Prices have dropped to below $30,000 this week – less than half of their peak last April. (Related: Chinese crypto crackdown causes bitcoin prices to plunge.)
“If the government doesn’t allow it (crypto mining), I just have to quit,” Liu Hongfei, a mining project operator in Yunnan province, told Reuters. “You don’t fight the Communist Party in China, do you?”
Most miners in China are now “shutting down their machines and selling them,” said Nishant Sharma, founder of crypto consultancy firm BlocksBridge Consulting.
Bitmain, China’s leading rig maker, announced last week that it suspended sales of its products and is actively looking for quality power supplies in places like the United States, Russia, Canada, Australia, Kazakhstan and Indonesia.
Meanwhile, BIT Mining had already delivered its first batch of 320 mining machines to Kazakhstan, with a second and third batch totaling 2,600 machines arriving at the country by July 1. The company has also invested in crypto mining data centers in Texas.
“We are accelerating our overseas development for alternative high-quality mining resources,” CEO Xianfeng Yang said in a statement.
Huang Dezhi, an operator of a Sichuan-based mining farm, says his team is exploring possible overseas markets in case restrictions remain in place. “If the government doesn’t reverse the policy, we will have no other choice. You cannot defy central government decisions,” he said.
A project manager who identified himself only as Sun says he has been offering to help local miners relocate their business to Russia. However, demand for his services has been lukewarm so far.
“Big risks if you move machines offshore, because you’re in effect giving up control over your assets,” said Sun, who is also securing fresh electricity supplies in Guangdong province, where restrictions are less tough.
The downturn in China’s crypto mining industry is due to Beijing’s pledge to crack down on Bitcoin trading and mining. China’s State Council, or cabinet, vowed last May to restrict Bitcoin trading and mining in a bid to reduce financial risks and illegal activities.
The move is also understood as a way to bring China on track of its emission targets. Mining is extremely energy-intensive as it requires the use of powerful, specially designed machines.
“Crypto mining consumes a lot of energy, which runs counter to China’s carbon neutrality goals,” Chen Jiahe, chief investment officer of Beijing-based family office Novem Arcae Technologies, told Reuters last May.
Analysts speculate that Beijing is also worried that cryptocurrencies will compete against the digital version of its national currency. China’s central bank is currently conducting trials of the digital yuan. (Related: China’s central bank calls on top executives to reinforce crypto ban.)
Following Beijing’s announcement, Sichuan issued a notice over a week ago ordering local electricity companies to “screen, clean up and terminate” crypto mining operations. It also banned local authorities from approving new mining projects and told electricity providers to immediately cut power to newly detected crypto mining activities.
Xinjiang province, Yunnan province and the Inner Mongolia Autonomous Region also implement tight restrictions on Bitcoin mining.
Bans in those regions mean that more than 90 percent of Bitcoin mining capacity – one-third of the global crypto network’s processing power – will remain suspended in the short-term, according to Shentu Qingchun, CEO of Shenzhen-based blockchain company BankLedger.
Follow Risk.news for the latest on China’s regulatory moves against cryptocurrencies and what it means for the industry.