As Bitcoin's price continues to decline, China's renewed tightening of the mining ban may partly explain the sudden drop.
In Xinjiang province, approximately 400,000 miners had to suspend their operations and go offline. The sudden outage cut off revenues, forcing some operators to sell their Bitcoin holdings to cover operational costs or to finance relocations.
Mining disruptions increase pressure on Bitcoin's decline
In a recent social media update, former chairman of Canaan Jack Kong stated that China's computing power has dropped by about 100 exahashes per second (EH/s) within a day. According to him, the drop, estimated at around 8%, followed the shutdown of hundreds of thousands of mining machines.
The news broke just before Bitcoin fell to $86,000 on Tuesday, breaking the $90,000 level it had maintained for the past week.
Some analysts consider the timing more than coincidental and point to a correlation between mining shutdowns and price drops.
They note that sudden and stringent actions force miners to act quickly, which may increase short-term pressure on the markets.
Miner shutdowns cause liquidity stress and selling.
According to Bitcoin analyst NoLimit, when miners go offline, it usually triggers a chain reaction.
It involves immediate loss of income, urgent liquidity needs to cover operational costs or relocations, and in some cases, forced selling of Bitcoin holdings.
These phenomena reflect more broadly on the cryptocurrency market. When about 8% of Bitcoin's computing power suddenly disappears from the network, uncertainty increases, adding short-term pressure to Bitcoin's price.
"It creates real selling pressure, not the other way around," NoLimit explained.
The timing reinforced the impact. China's mining sector had recently regained its position as a significant global hashrate producer.
The restoration of mining faces unexpected regulatory pressure.
Less than a month ago, China returned to being the world's third-largest Bitcoin mining hub. According to the Hashrate Index, the country accounted for about 14% of the global hashrate in October.
Although an official mining ban was imposed in 2021, underground operations have continued to expand throughout China.
Analysts see key factors as low electricity costs and surplus electricity in some areas, which have driven the resurgence.
In this situation, this week's mining ban surprised miners. As legislation tightened suddenly and Bitcoin's hashrate dropped, miners' revenues quickly became a key concern.
The pressures were compounded by Bitcoin's roughly 30% drop from October's peak, as well as persistently low transaction fees, which weighed on miners' revenues to recent lows.
Since mining is the foundation of Bitcoin network security and operation, the recent price drop appears to align with market disruptions, though the full impact may reveal itself over time.
