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China’s New Mining Policy Doesn’t Mean the Death of Bitcoin

The entire crypto industry has taken a massive this month when the price of Bitcoin dropped more than 40%. And while industry experts have been debating as to who’s to blame for the market’s biggest drop in a year, many have pointed their fingers at China and the regulatory uncertainty regarding Bitcoin mining. With the majority of Bitcoin’s hash rate coming from China, any news about a potential government crackdown has the potential to send the market spiraling down.

This is exactly what happened when news about Bitcoin mining being “banned” in China began circulating first in crypto news outlets and then in the mainstream media. When combined with the recent social media outbursts from personalities such as Elon Musk and further regulatory uncertainty regarding crypto taxes in the U.S., chaos was bound to ensue.

However, sources directly involved with mining in China have pointed out that the situation wasn’t nearly as dramatic as it was portrayed by the media and that the Bitcoin network, no matter how badly it might get hit, is bound to recover.

Jiang Zhuoer, the founder and CEO of BTC.TOP, took to Twitter to share his view of the situation in China, putting many of the rumors circulating in the media to rest. Namely, he explained that during a meeting of the China Financial Stability Board, government officials agreed to engage in efforts that would “prevent and control financial risk.” And while this includes Bitcoin mining, most of those efforts will be aimed at trading activities.

During the meeting, it was established that the government would step in and restrain social capital from flowing into the crypto mining sector. This, according to Jiang, might lead to the risks involving cryptocurrencies transferring from individuals engaged in trading to the whole society.

This doesn’t mean that Bitcoin mining will be outlawed—it means that mining operations that rely on the inflow of financial capital might face more restrictions from the government. Individual mining is and always will be allowed, with the government placing the solve responsibility for risks and profits to the individual operating the mine.

Jiang explained that this looks a lot like the regulatory situation in China in 2013 when the country banned financial and payment institutions from participating in and providing services for Bitcoin trading. However, in the same notice that introduced the ban, the Financial Stability Board also noted that the general public was free to trade Bitcoin at their own risk.

He believes that the latest government effort will have little effect on Bitcoin mining in general. In China, mining will begin a shift from industrial-size datacenters to smaller operations. And even though establishing smaller mining operations might pay higher electricity prices, the increase in cost will be balanced out by the overall decline in the number of machines providing the hash rate. This will make the output per mining unit rise and counterbalance the rising power costs miners will have to deal with, Jiang explained.

“During the process, there will not be obvious changes in the entire Bitcoin network, except that European and North American mining pools will rank higher than the Chinese pools,” he added.

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