As the Bitcoin price continues to decline, China's new hard approach to mining seems to help explain why the price has suddenly plummeted.
In the Xinjiang province, an estimated 400,000 miners had to cease their activities and go offline. Due to this sudden interruption, their income disappeared, forcing some operators to sell their Bitcoin to cover costs or finance a move.
Mining disruptions increase pressure on Bitcoin decline
In a recent social media post, former Canaan chairman Jack Kong stated that computing power in China decreased by about 100 exahashes per second (EH/s) in 24 hours. He indicated that the drop, around 8%, was due to the shutdown of hundreds of thousands of mining machines.
The news came just before Bitcoin dropped to $86,000 on Tuesday, below the $90,000 level that was held over the past week.
Some analysts do not see the timing of this as coincidence and point to a connection between the mining shutdowns and the price drop.
They note that sudden and strict measures often force miners to act immediately, thereby creating additional short-term pressure on the market.
Miner shutdowns cause liquidity stress and selling pressure
According to Bitcoin analyst NoLimit, a chain reaction usually occurs when miners have to go offline.
As a result, income immediately disappears, creating a quick need for extra cash for costs or relocations, and sometimes selling Bitcoin holdings becomes unavoidable.
This dynamic directly impacts the broader crypto market. If suddenly about 8% of Bitcoin computing power goes offline, uncertainty increases and there is more short-term pressure on the Bitcoin price.
"That creates real selling pressure, not the other way around," NoLimit explained.
The timing amplified the impact. The Chinese mining sector had just re-established itself as a significant contributor to the global hashrate.
Mining comeback faces sudden regulatory pressure
Less than a month ago, China became the third largest Bitcoin mining hub in the world again. According to the Hashrate Index, about 14% of the global hashrate came from China in October.
Despite the official ban on mining from 2021, there is still a lot of underground mining activity in the country.
Analysts cite access to cheap electricity and the surplus of energy in certain regions as key reasons for the miners' comeback.
This made last week's stricter approach to miners a surprise. When the rules were suddenly tightened and the Bitcoin hashrate dropped, immediate concerns arose about miners' revenues.
This pressure was intensified by the Bitcoin price drop of about 30% since the peak in October and by persistently low transaction revenues, causing miners' earnings to fall to recent lows.
Since mining supports the security and operation of the Bitcoin network, the recent price drop seems to align with this broader disruption, although the full effect is likely to become apparent only later.
