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Bitcoin’s hashrate recovery, stable peer-to-peer markets, and the consistent volume displayed by Asia-based exchanges indicate that China’s attempt to ban BTC was ineffective.
Bitcoin (BTC) may have been subjected to its largest coordinated attack in recent months, but the investor community did not give up. China outright banned mining in most regions after providing BTC miners with a two-week notice, resulting in the single largest mining difficulty adjustment as the network hash rate dropped by 50%.
Bitcoin’s market sentiment was already harmed after Elon Musk announced that Tesla would no longer accept Bitcoin payments due to the environmental impact of the mining process.
It is unclear whether Musk’s remarks influenced or were related to China’s decision, but those events undoubtedly had a negative impact.
A few weeks later, on June 16, China barred cryptocurrency exchanges from appearing in web search results. Meanwhile, the derivatives exchange Huobi has begun to restrict leverage trading and has barred new Chinese users.
Finally, on June 21, the People’s Bank of China (PBoC) directed banks to close the bank accounts of over-the-counter desks, as well as their social media accounts. OTC desks essentially serve as a fiat gateway in the region, making it difficult to exchange Bitcoin for stablecoins without them.
As events unfolded, some analysts were hesitant to label China’s tactics as nothing more than meaningless FUD, but in retrospect, it appears that China launched a well-planned and executed attack on the Bitcoin network and mining industry.
Because of the drop in Bitcoin price and growing fears of a 51 percent hashrate attack, the short-term impact could be considered moderately successful.
Regarding Bitcoin Mining and China, I would not believe anything you hear. I would not rule out the possibility that the Chinese Communist Party is trying to orchestrate a 51% attack on the Bitcoin network. Stay vigilant.
— Danny Diekroeger (@dannydiekroeger) June 25, 2021
Despite the manoeuvres, China’s attack ultimately failed for the following reasons.
The hashrate has been restored to 100 million TH/s.
The Bitcoin network hash rate, an estimate of total mining power, began to fall after peaking at 186 million TH/s on May 12. The first few weeks were impacted by coal-powered area restrictions, which were estimated to account for 25% of mining capacity.
However, as the ban was extended to other areas, the indicator fell to 85 million TH/s, its lowest level in two years.
The Bitcoin network’s processing power recovered to 100 million TH/s in less than three weeks, according to the data above. Some miners successfully relocated their equipment to Kazakhstan, while others relocated to Canada and the United States.
Peer-to-peer (p2p) markets carried on
Despite the fact that companies involved in crypto transactions were barred from entering the country, individuals continued to act as intermediaries, with some of these recording over 10,000 successful peer-to-peer transactions, according to data from the exchange’s own ranking system.
Huobi and Binance both provide a similar marketplace where users can trade a variety of cryptocurrencies, including USD Tether (USDT). After converting their fiat to stablecoin, they can transact on a regular or derivatives exchange.
Spot volume is still dominated by Asian exchanges.
A complete crackdown on trading from Chinese entities would almost certainly be reflected in previous exchanges based in the region, such as Binance, OKEx, and Huobi. However, based on recent volume data, there hasn’t been a significant impact.
Take note of how the three ‘Asian-based’ exchanges continue to dominate, while Coinbase, Kraken, and Bitfinex are nowhere near their trading volumes.
The ban on Bitcoin mining and transactions in China may have caused some temporary hiccups and a negative impact on the BTC price, but the network and price have recovered in a way that many did not expect.
There is currently no way to quantify OTC transactions in which larger blocks are traded, but it is only a matter of time before these intermediaries find new gateways and payment routes.