EDITOR NOTE: If you’ve been following the cryptomarkets lately, you would’ve noticed Bitcoin’s astounding rise past $18,000--closing in on its 2018 highs. But given the fact that Bitcoin isn’t (yet?) a mainstream-adopted currency, what fundamentals are driving the coint besides speculation? The article below explores one possible angle: China’s crackdown on local exchanges and its freezing of bank accounts is creating a bottleneck for crypto miners swapping their cryptos for cash. We don’t know to what extent this is driving BTC prices higher. But we do know such a scenario--and its tailwind effect--is likely unsustainable.
Bitcoin’s recent price surge could be at least partly attributable to Chinese miners struggling to swap their crypto for cash in the face of a government crackdown on local exchanges, resulting in a supply crunch, according to a Coindesk report.
“The lack of supply has fed extremely well to the trendiness of this rally, without any of the large sell-downs typical of miner activity in the past,” Singapore-based trading firm QCP Capital said in its Telegram channel.
QCP’s interpretation of the top crypto’s dramatic rally – it has surged past the $18,000 mark from around $16,000 just a week ago – is a bit more prosaic than some of the other explanations – some analysts point to macro factors such as the growing need for a hedge against excess money printing and consequent inflation, and the search for yield.
Miners operating in China need cash like everyone else. They put their bitcoin holdings on the market almost daily to cover their expenses, a big part of which is electricity costs, and their bills have to be paid in the local yuan currency. This means miners are constant sellers, and that selling affects the market price, said the Coindesk report.
However, Chinese miners, who control over 70% of bitcoin’s hashrate or mining power, have been struggling to liquidate their crypto holdings for cash because their bank accounts and cards are in many cases being frozen by Beijing as part of its nationwide crackdown on telecommunications fraud and money laundering via cryptocurrency deals.
QCP cited a blog by a Chinese crypto watcher going by the name Wu Blockchain, who said 74% of the miners he polled are struggling to pay their electricity bills. “There are also miners who said that the mining machine has been shut down for a month because they cannot sell the currency to pay the electricity bill,” Wu added, according to a Google translation of his blog. “Some OTC companies that specialize in serving miners have also terminated their business.”
Thomas Heller, formerly global business director at the mining pool F2Pool and now chief operation officer of mining and media firm HASHR8, confirmed the Chinese miners’ predicament earlier this week, saying it has become a “challenge” for Chinese miners to convert bitcoin and tether into cash.
The industry has had a tough time since the Chinese authorities began freezing bank accounts in June and their predicament is getting worse.
“Mining pools were selling large chunks of bitcoin in early September through exchanges, but this was hastily halted as their last remaining fiat off-ramp avenues were impacted with the arrest of large exchange heads like Star Xu and other [over-the-counter] brokers,” QCP Capital said.
China crypto rankings
Meanwhile, China’s Center for Information and Industry Development, under the country’s Ministry of Industry and Information Technology, has released its 20th ranking of crypto projects, Bitcoin.com reports.
Thirty-seven crypto projects are ranked this time around overall as well as in three separate categories: basic technology, applicability, and creativity.
The top four positions remain unchanged overall from the previous ranking, with Dash replacing NEO in the fifth position. Bitcoin climbed from the 14th position to the 11th place while Bitcoin Cash rose slightly from the 30th to the 29th position. IOTA continues to rank the lowest.
Originally posted on Asia Times