Cryptocurrency miners in China will be forced to pack up and shut down at the behest of authorities, or risk continued operation in violation of a state mandate now being carried out by a multiagency task force led by the central bank.
It was reported by local sources that last week, a notice was circulated among Chinese authorities directing them to "guide" an "orderly exit" for operators of cryptocurrency mining facilities as they shut down operations. The notice was issued by an interagency task force assigned to the role of examining risks in internet finance.
In remote regions of China, on the outskirts of civilization, where electricity is relatively inexpensive and abundant while temperatures are colder – ideal conditions for mining cryptocurrency – operators of rigs have already begun to comply with the state order and shut down, although no deadline was established by the notice.
ETHNews obtained and translated a copy of the notice, which surfaced via social media.
"According to relevant departments reports, there are mining businesses that produce cryptocurrency that consume a large amount of resources and encourage the speculative cryptocurrency. In accordance with the spirit of the National Financial Work Conference on Risk Prevention, Limiting the Deviation from the Real Economy and the Innovation in Avoiding Supervision, the Internet financial risk special group met on Nov. 20, 2017. Now the next work notice is as follows: First, it will actively guide the enterprises in quitting the mining business. Local government needs to take action to increase electricity price, property tax, and environmental protection for shutting down the relevant businesses. Please take action and report to local government before Jan. 10. Second, please submit the progress of work regularly. In order to keep abreast of the progress of work in various places, please report the remediation work in all localities before the 10th of each month."
Without giving away too many details, the founder of the F2Pool (who goes by the nickname "Shen Yu," or "mythical fish") confirmed that the mining pool's Inner Mongolia and Xinjiang operations have already been given "directives" from local authorities. F2Pool mined 9 percent of bitcoin in the last month, but the founder asserted, "We are already very small."
It is estimated by researchers at Chainalysis that, in the last 30 days, rigs in China accounted for nearly 80 percent of cryptocurrency mining hash power worldwide. Philip Gradwell, chief economist at Chainalysis, explained that it can take as long as 14 days for the ecosystem to correct for changes in the rate of token creation; if 80 percent of the world's mining power suddenly disappears, it could take months for the market to recover.
"If China really does switch off all the miners suddenly, there could be a very high level of disruption," said Gradwell. "It's very hard to estimate back-of-the-envelope how big an impact would be."
However, such an outcome may not be in the cards. China's approach to regulatory crackdown has been that of a slow-moving yet powerful machine; with foreknowledge of its regulatory trajectory, mining companies have been able to position themselves out of its path.
Co-founder and CEO of cryptocurrency exchange BitMEX, Arthur Hayes, would appear to agree. "I don't think miners have been sitting on their hands," he said. "Some people have already moved their hardware out of China."
In a case proving Hayes' point, China-based Bitmain has expanded operations into Switzerland, with a subsidiary in Zug.
On the move to Zug, a spokesperson from Bitmain told a local Swiss paper, "Bitmain Switzerland will play a central role during our global expansion."
China may yet recant the cryptocurrency mining shutdown, but in the meantime, mining operations might start looking elsewhere for cheap electricity and cold conditions.