China has been a central player in the development of bitcoin in recent years, but Beijing has spent the last six months cracking down on the cryptocurrency industry — shutting down local exchanges and banning initial coin offerings.
Leaked documents suggest the Chinese government plans an “orderly exit” for bitcoin mining operations in the coming weeks and months.
In the documents, issued to the local offices of the internet-finance regulator, authorities were instructed to force mining operations out of business using measures linked to electricity pricing, land use, tax and environmental protection.
Bitcoin mining is the process of solving complex mathematical equations in order to verify and record transactions on the blockchain, the distributed ledger that underpins the currency.
Verifying those transactions earns miners bitcoin.
Thanks to cheap electricity, China has in recent years become a major hub of mining, accounting for around 70 percent of the bitcoin mining network.
As such, a blanket ban on operations is likely to have a major impact on the cryptocurrency’s price.
Removing a large portion of the network will also slow the number of new bitcoins mined, causing a shortage that in turn will likely result in another surge in price — which currently sits at around $15,500.
The ban would also likely spike transaction times, leading to a rise in the fees paid to transfer bitcoin. This could negatively impact the price, as it will make the cryptocurrency even less practical to use as an alternative to fiat currency.
The documents suggest the decision to ban mining was taken in November. It’s an unsurprising move given that Pan Gongsheng, deputy governor of the People’s Bank of China, recently predicted the death of bitcoin.
Some of China’s mining operations are already looking to relocate overseas, but the process will take time and will inevitably lead to lower margin, since electricity prices outside China are much higher.
Russia could be in a position to capitalize given it also has cheap electricity prices. Moscow recently launched a plan to capture one third of the bitcoin mining network from China.