Cryptocurrency's future in China looks dim amid crackdown
"The golden era for Bitcoin mining has ended," Zhao, a 40-something Bitcoin mine owner, said with a sigh that accentuated his concerns about the gloomy prospects of this once booming industry.
Zhao's worries are the result of the central government's increasingly tightened policy toward the industry in the past few years. In the most recent move, the National Development and Reform Commission (NDRC), China's top economic planner, labeled "mining" activities for Bitcoin and other virtual currencies an industry to be "eliminated" in a draft catalogue on readjustment of industrial structure.
The NDRC did not mention a specific timetable or plan to eliminate virtual currency mining, which indicates the government will immediately eliminate the sector.
Last year, the office of the leading group for the special campaign against internet financial risks, which oversees the government's efforts in fending off online financial risks, released a policy directive to phase out mining operations in an orderly manner.
China's central bank also banned Bitcoin trading in September 2017.
The NDRC draft, which was released on April 8 and is open to comments from the public until May 7, is viewed by many industry players like Zhang as the final straw for their business in China.
"My business will enter a dead-end now if the new policy takes effect," Zhao, who owns several Bitcoin mines in Southwest China's Sichuan Province and Northwest China's Xinjiang Uyghur Autonomous Region, told the Global Times.
"If the local government elevates the electricity cost for virtual currency mining [as it aims to reduce outdated capacity], it would create a huge burden that would eventually crush me," Zhao said.
China's Bitcoin miners have centered around Sichuan, Xinjiang, Southwest China's Guizhou Province and North China's Inner Mongolia Autonomous Region - regions rich in hydropower and energy and where relatively low electricity prices enable large-scale cryptocurrency mining.
For miners, it is generally a very long process to recover costs. Take Zhao for example. He now spends about 90 percent of revenue to purchase electricity, and he has also paid a hefty price for dozens of mining machines. "Electricity and machine costs have eaten up my revenue and I have yet to make a profit."
Spreading pessimism
Other industry insiders are even more pessimistic.
"Most Bitcoin miners have immediately frozen their plans to purchase new machines since the draft proposal was announced in early April, ramping up pressure on major mining machine producers who have already witnessed a freefall in sales price as Bitcoin prices have plunged," a senior executive, surnamed Yang, at one of China's largest virtual currency trading platforms told the Global Times over the weekend. "The whole industry in China will gradually shrink unless the prices of virtual currency climb."
Bitcoin's price has dropped by almost half in April compared with the same time last year.
A manager surnamed Shao at Canaan, one of China's three largest mining machine suppliers and also the second-largest global mining manufacturer, admitted that the sales prices of machines "cannot be compared with" the peak price last year. "But there are more orders for the newest generation A10 mining machine model," Shao told the Global Times on Friday. He refused to disclose sales figures for the company's mining machines.
Another two major mining machine suppliers in China, Bitmain and Yibang International, had not responded to the Global Times' interview request as of press time.
