Bitcoin FUD out of China might be helping to lower the cost to produce BTC.
The news of the crackdowns on mining farms in China has rocked the market lately. Entire mining operations were shut down and they had to be moved to other sites. No one is sure where the rigs will be moved to yet. Speculations are that North America would be a new base of operations for the facilities that have had to move their operations out of China.
Mining in China accounts for about 70 percent of all mining operations carried out in the world. This means that with China closing down mining farms, the hash rate has reduced. Firms have had to look for ways to ship their rigs outside of the country.
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Energy consumption is a huge pain point when it comes to mining. China has cheap energy costs which is why it was an ideal destination for miners.
But regardless of the low energy costs in the country, it takes a lot of energy to power the computers that are used for mining. Energy costs are significant and in line with their cost of production, firms set the price of their mined coins accordingly. This is in an effort to make sure that they are able to cover running costs while also turning a profit at the same time.
Bitcoin Price Floor
With so many rigs out of service, this has significantly lowered the amount of electricity consumed in the mining of Bitcoin.
The price floor of Bitcoin has always been the amount of energy required to mine the coins. This is known as the historical price floor.
Like with anything, the lower it costs to produce, the lower the price. And Bitcoin has been proving to be no different.
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With reduced energy consumption which translates to reduced energy cost, the price floor of Bitcoin is falling, and it continues to floor. As such, the price is keeping in line with the price floor and going down.
China FUD And Price
FUD has always had a big effect on market prices. With a major one like China shutting down mining due to environmental reasons, it can lead to fear, which can lead to dumping.
The crypto market is also subject to laws of economics like other assets. A higher supply than demand will lead to a lower price. While a lower supply and higher demand will lead to a higher price. Dumping basically increases the supply of coins in the market as people get rid of their holdings due to fears.
Bitcoin price chart | Source: BTCUSD on TradingView.com
So while the crackdown might be lowering the cost of producing BTC, it is not necessarily having a good effect on the price of the asset.
With so many mining rigs out of commission in China, the miners online are experiencing higher profit rates due to the reduced hash rate. This makes them more likely to sell their coin for less. Exchange prices always adjust to the prices of the buy and sell orders. And if the prices on the orders are lower, the overall price of the coin is going to follow this and go down.
The price of Bitcoin is currently at a little less than $37k. It’s down from its $41k high from this week.
Featured image from Bitcoinist, chart from TradingView.com