As the year that China banned Bitcoin mining, 2021 saw the Great Mining Migration – the global relocation of Chinese mining operations – and marked the beginning of a new phase for the industry, a recap of the year shows. According to top Asian crypto market data aggregator, CoinGecko, Bitcoin miners flocked from China to other countries like the US and Kazakhstan after the crypto ban in September 2021 for more favourable electricity prices and to avoid regulatory crackdowns.
The move reduced competition from Chinese miners following the fall of hash rate within the same period of time – though it was later suggested that as much as 20% of the Bitcoin network still reportedly exists in China as underground mining operations. It also created a lapse that made the strong hash rate recovery possible which gave several Bitcoin miners record breaking profits in Q2 of 2021.
Bitcoin’s total hash rate had earlier crashed after Chinese authorities announced a mining ban on 21 May 2021. The announcement dropped the Bitcoin hash rate to a multi-year low of 85M TH/s, CoinGecko notes in its yearly report for 2021, even though total hash rate later recovered to 168M TH/s by the end of 2021 and even hitting ATH of 182M TH/s on 10 Dec. By August, the US led with ~35% of total hash rate share, followed by Kazakhstan at ~18% for its cheap and abundant coal power. Reports later claim there were frequent power cuts to Bitcoin farms in Kazakhstan since its electricity shortfall in October leading to a drop in its total share of global hash rate when compared to its August numbers. Such drops were temporary as the global hash rate maintained a steady climb towards the end of 2021 with miners likely having migrated to other countries.
Other significant pushes for the crypto mining industry in 2021 according to Luxor Mining include that it was the year that Bitcoin mining asserted itself as a multi-billion dollar industry that can’t be ignored even as China moved to ban it. China’s Bitcoin mining ban presented “extreme profitability swings” and a “once-in-a-blue-moon opportunity”, the data and hash rate insights provider notes in its Hash rate Index 2021 Year End Report. The ban enabled Bitcoin’s largest-ever downward difficulty adjustment on July 3 by 28% to increase Bitcoin hash price by 32% from 703 sats/TH/day to 930 sats/TH/day – Bitcoin’s USD-denominated hash price hit a three-year high of $0.41275/TH/Day on October 19.
The ban became “the single most significant event for miners since the advent of ASIC mining in 2012” and probably “the greatest stress-test for the Bitcoin mining industry to-date”. Average block time was affected too. The hash rate drop in mid-May caused miners to take on average 12.5 minutes to find blocks until July 3 – even spiked to as high as 23 minutes on June 27. The Great Mining Migration from China to other parts of the world also saw the resale market flooded with rigs which made ASICs more available to miners at reduced spot prices.
“In 2022, we expect that miners of all sizes will have built out additional capacity to absorb the excess of machines sloshing around in the resale market,” Luxor Mining notes, adding that when this happens, chip shortages and other supply chain constraints could eventually result in a shortage of ASICs.
