This past month, the price of Bitcoin has mainly sustained above the $30K mark despite a brief trip to $28K due to continued uncertainty in the Chinese market. For example, the province of Sichuan known as the hydroelectricity epicenter of China ordered state-own power plants to cut supply for 20+ mining farms.
The fall below $30K led to panic selling across the board, and liquidations exacerbated the selling pressure by setting a new record in terms of losses for traders of $3.4 billion. This amount has surpassed the previous record high of $2.6 billion in the May 2021 sell-off. The restrictions from China have also manifested signs of a disrupted network.
As of writing on June 30th, the last block of transactions on the bitcoin blockchain was found and settled more than 40 minutes ago. It generally takes about 10 minutes for settlements to occur, but the crackdown on Bitcoin mining in China has pushed miners to shut down operations. It's reported that the majority of Chinese miners went offline due to these unprecedented circumstances.
Every 2,016 blocks or every two weeks, there’s a mining difficulty adjustment to make mining a fair competition to find a block within 10 minutes. The upcoming difficulty adjustment is expected this Friday, and it is estimated that the difficulty will decline by more than 20%, down to computing levels not seen since June 2020. It is the sharpest drop in computing power in Bitcoin history. At 21.co, we anticipate this adjustment to make mining more accessible to the least competitive miners for the upcoming weeks until the remainder of miners gets back online. After this point, the hash rate will effectively increase in tandem with difficulty.
New Mining Hubs Popping Up Outside China
As we emphasized in our previous investor letters, the mining industry is changing faces completely. The China Exodus is giving birth to new bitcoin mining hubs outside China. At 21.co, we foresee Chinese miners relocating to crypto-friendly and nearby locations with attractive electricity costs like in Uzbekistan and Kazakhstan. Miners are incentivized to keep their expenses low and hence find the cheapest electricity prices. These countries offer some of the best deals in the world. But, unfortunately, in Kazakhstan coal fuels around 70% of electricity generation (in 2018), followed by natural gas (20% in 2018). On average, electricity prices for businesses are $0.042 KWh in Uzbekistan and $0.052 in Kazakhstan. For example, BIT Mining Limited (NYSE: BTCM) announced that it successfully delivered its first batch of mining machines to Kazakhstan.
The recent restrictions of mining activities in China have accelerated the paradigm shift of bitcoin mining to North America as we predicted a year ago. For example, the American company Square has pledged to support green bitcoin mining with $10 million to start. In the same vein, Elon Musk and Michael Saylor of MicroStrategy, held a private meeting with miners based in North America to form a council to disclose energy usage in a standardized manner and promote the use of renewable energy in the world. As mentioned in our 2021 predictions, we also expect more initiatives to employ Bitcoin mining using renewable energy sources.
Crypto Adoption Still Grows
Despite this crackdown, the fundamentals have not changed. Crypto will adapt and thrive in this new paradigm. As a testament to continued adoption on the institutional front, the inflows of 21Shares ETPs are a good indication of the institutional sentiment. This month, more than $50 million were poured into 21Shares exchange-traded products.
Bitcoin officially became legal tender alongside the US dollar in El Salvador. The country will also set up mining facilities solely using geothermal energy from volcanoes for committing to zero carbon emissions. El Salvador paves the way for other countries to adopt bitcoin as a legal store of value. This milestone could help skeptics change their stance on the cryptoasset, such as India, which will likely consider bitcoin as an asset class going forward. The El Salvador movement is also showing the world that Bitcoin is not just digital gold, the bitcoin network could also be leveraged as a censorship-resistant payment rail to process zero-fee payments for remittance purposes with the application Strike.
On a more positive note, Elon Musk clarified that Tesla would resume bitcoin payments once the network shows a clear path towards mining excessively with clear energy, at least 50% of the mining activity, the entrepreneur specified.
Finally, access to cryptoassets for the mainstream is still in work-in-progress mode. For example, over 600 US banks will offer crypto trading services to more than 20 million customers or almost 10% of the adults in the United States, while decentralized finance services find synergies with fintech applications. Compound, a blue-chip lending protocol built on Ethereum, has just released its institutional-grade feature to let businesses offer a fixed-rate savings account of 4% APY. As a matter of fact, Current, the second most downloaded banking application in the US, will integrate Compound’s feature.
In hindsight, we’ll look back at this correction and situation in China as one of many defining moments proving the robustness of the Bitcoin network. The decentralized nature of bitcoin is a crucial feature to keep the network running despite the current network latency. No other payment services more centralized by nature could be functional amid a crackdown, and this is a positive indication for the future of Bitcoin in times of crisis.
