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The confirmation hearing for Gary Gensler, nominee for SEC Chairman, began today at 10 a.m. EST. Crypto was broadly up this morning, with DeFi tokens UNI and SUSHI up +12 and +15%, respectively.
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Yesterday, several outlets reported that the government of the Chinese region of Inner Mongolia is planning to shut down crypto mining as part of broader efforts to meet energy efficiency standards. The move isn’t expected to have a significant impact on mining, which is increasingly distributed around the globe.
The region's government published a proposal last Thursday on a variety of regulatory measures that aim to achieve energy efficiency goals in the region. As part of these measures, the proposal aims to “clear out and shut down all virtual currency mining projects by the end of April 2021.”
The region’s measures were presented as a draft proposal that’s subject to change and currently seeking public feedback. Hong Kong-based outlet SCMP, however, writes that the public consultation is considered, “a routine procedure ahead of the official announcement, which is highly likely to be implemented…”
While calculations of national and regional contribution to BTC mining are estimations based on several assumptions, China has historically hosted a bulk of miners. However, the country’s contribution to BTC hash rate, the aggregate computing power dedicated to mining, has been declining. For example, data from the Cambridge Centre for Alternative Finance shows that China contributed to 75% of BTC hash rate in September 2019, and that same figure dropped to 65% in April 2020, the last period during which the Center made its data available.
During this period, a number of countries increased their contribution, notably the US from 4.06% to 7.24%. Within China, the Cambridge data shows that as of April 2020, the Chinese regions of Sichuan, Xinjiang, Yunnan, and Inner Mongolia contributed 37.40%, 14.42%, 10.23%, and 6.04%, respectively, to the global hash rate.
Anecdotal data points suggest non-Chinese mining facilities are driving current upticks in demand for mining hardware and that China’s share in global hash rate has further diminished. For example, Chinese outlet Global Times reported last week that a jump in demand for mining hardware from Canaan Creative has been led by North American and Central Asian miners.
In a Reuters article from January, Lei Tong, Managing Director of Financial Services at Babel Finance, which lends to miners, said “[p]urchase volumes from North America have been huge, squeezing supply in China.”
Possible bans on BTC mining in China have been rumored in the past. Most recently, in April 2019 BTC mining was placed on a list of 450 environmentally damaging activities and a country-wide ban was expected to move forward until the activity was removed from that list.
The concentration of BTC mining in China is owed to proximity to hardware producers and the abundance of cheap power available for mining. Considering that BTC mining costs have remained relatively fixed while the asset has appreciated, the comparative advantage of mining the asset in China due to cheap power has diminished. Moreover, the country’s ban on BTC trading and prohibition on servicing crypto-related businesses by banks further complicates the growth of crypto mining in China.
Considering the increased participation of non-Chinese miners, a potential ban in Inner Mongolia is unlikely to have significant and lasting effects on the network and is more likely to accelerate the ongoing trend of increasing mining distribution globally.