China has actually “missed the ball,” as geopolitical certainties and access to low-cost energy and infrastructure will allow the U.S. to capture more bitcoin mining market share.
Following China’s sweeping crackdown on the crypto industry, the U.S. has captured the bitcoin mining market for the first time – and industry CEOs don’t think the trend will stop anytime soon.
“I expect the U.S. to continue to be a leader in terms of share since the jurisdiction,” mining company Bit Digital Chief Executive Officer Bryan Bullett said in an interview. “No one wants to operate in a region where they face existential threats,” he added.
Indeed, the Bitcoin network’s hashrate, the level of computing resources used to conduct mining activities, has recovered from its lows in July, even after China’s ban forced miners to halt their operations in the region. According to data analytics firm Glassnode, the bitcoin network’s hashrate has increased by about 117% to 133 EH/s since Oct. 12, after hitting a low of 61 EH/s in July.
The new report from the Cambridge Centre for Alternative Financing (CCAF) now confirms that in light of the China restriction, miners outside the country, mainly from the US, have taken control of the global Bitcoin mining operation. The U.S. accounts for 35.4% of the global hash rate since the end of August, more than doubling from 16.8% at the end of April.
Meanwhile, mining operations in mainland China have dropped to absolutely zero from a high of 75.53% of the global bitcoin mining hashrate in September 2019. Kazakhstan and Russia follow the U.S. with 18.1% and 11% of the hashrate, respectively, down from 8.2% and 6.8% in April, according to the CCAF report
Geopolitics of Bitcoin Mining
For any industry to run a successful organization, a secure jurisdiction is among the essential considerations, and considering that the U.S. has a steady, transparent regulatory routine that considers the market before making any changes to the laws, that’s the main reason the U.S. will continue to gain share and retain its top mantle, Bullett said.
Aside from geopolitical security, U.S. miners also enjoy better access to infrastructure and lower electricity costs, said Dave Perrill, CEO of data center operator Compute North. “I think the U.S. will continue to lead in terms of scale, cost and geopolitical risk,” Perrill said in an interview.
Paul Prager, chairman and CEO of mining company TeraWulf Inc, added of the U.S. recipe for success, “I think the main reason China missed the boat here is because they couldn’t control it, and Bitcoin is about openness, democratic values and decentralization.” He also recommended that the U.S. has a fantastic regulatory environment, a “directive of the law” and a great availability of energy, which attracts more miners to the region
Test case for Bitcoin’s durability
The large exodus of miners to the U.S. has created a special situation for the entire crypto ecosystem, as the world will be watching to see if a government can shut down a technology that was supposed to be decentralized.
“There are clearly countries that are capable of shutting down the Internet, or at least controlling what residents can see on the Internet. It remains to be seen whether federal governments can apply comparable controls to blockchain, which is probably the biggest systemic threat to innovation,” said Max Galka, founder and CEO of blockchain analytics firm Elementus.
The China restriction is an “interesting test case” to see if a government can truly ban this innovation and how the industry reacts to such moves, Galka said in an emailed statement.
“If China enacts this ban and the activity continues anyway, I believe that banning cryptocurrencies is no longer an option for governments,” he said.
Regardless of how China’s characteristics turn out, regulatory safeguards, access to cheaper energy and the ability to build facilities needed for smooth mining operations will likely help the U.S. maintain its leadership position in the mining market.
“Given all of these factors, it makes sense that we have a dominant position in mining bitcoin, and we will continue to build on that position,” TeraWulf’s Prager said.