Monday’s 7% spike in the price of bitcoin has been attributed in parts to the latest release of a proposal by the Inner Mongolia region to shut down existing cryptocurrency mining projects by April 2021 and not approving any new ones. 

Once effective, the move will take away the region’s 8% contribution of computing power to global Bitcoin production out of China’s overall for about 65%.

Computers used in mining Bitcoin are high-powered and they consume a lot of energy. According to a University of Cambridge estimate, Bitcoin alone consumes over 128 terawatt hours of electricity per year based on current rates.

The region’s move, which is in line with plans laid out by its development and reform commission to reduce energy consumption as part of the country’s push to become more environmentally-friendly, also involves reassessing other energy-intensive industries like steel and coal.

Based on China’s aim to be carbon-neutral by 2060, there is also a suggestion that mining operations in Xinjiang and Sichuan might be switched off next. 

Ban spurs price, stock rise

Bitcoin’s 7% surge on Monday follows the cryptocurrency’s worst weekly performance since March 2020 last week. While attributed to the Inner Mongolia proposal, it is also in part to the release of a bullish 108-page report by Citi in which the bank states that the top cryptocurrency could be at the start of a “massive transformation” into the mainstream of finance and even become central to global trade if innovation and adoption continues.

The Chinese region’s mining activity shutdown, for its probable long-term effect, has set in motion speculations in the market outlook. It could lead to a squeeze that would hurt the industry particularly suppliers while scarcity could give an already-volatile Bitcoin “an unneeded upward push” in value. 

So far, the proposed ban also spurred a rally in the shares of multiple companies linked to cryptocurrencies including non-crypto companies in China that recently joined the trade. 

The stock of SOS Ltd, the emergency rescue services company which now also uses blockchain technologies to provide marketing and cloud computing services to its partners, rose 58.6% in regular trading after the news while shares of Bitcoin mining equipment manufacturer, Canaan Inc, followed with about 52.6% rise at $23.55. 

Others are Airnet Technology Inc, the Chinese in-flight entertainment and connectivity company which recently secured 500 cryptocurrency miners, saw its stock rise about 15% to $4.45; Beijing-based precision advertising and marketing services company, ZW Data Action Technologies Inc, which partnered Bitspace last month to build a blockchain mining platform, was up 10.16% to $3.39; and Bit Digital Inc, a Bitcoin mining company, saw it shares rallied nearly 20.3% to $17.90.

Caution on some Chinese crypto players 

Some stock market insiders however warn that despite it seems the recent pullback in Bitcoin is over, not all Chinese crypto players are well positioned for a sharp recovery even in a cryptocurrency boom with some becoming major start-ups in China and gone public. 

They cite that Canaan and Ebang International have gained in price over the past year but still lack fundamental financial strength hence should be avoided by investors for now due to their poor future prospects.