China is home to the world’s largest Bitcoin mining market and accounts for a staggering 65% of Bitcoin network hash rate. Large scale industrial mining hubs have sprung up in China's Yunnan, Xinjiang, Inner Mongolia and Sichuan provinces where electricity is cheap.
Local companies like Bitmain, F2Pool, and Canaan, have established themselves as the biggest manufacturers of Bitcoin mining hardware in the world and are at the forefront of technological advancements. Chinese miners have direct access to cheap electricity and the latest up to date mining hardware, but will this dominance continue?
China's Mining Dominance is Fading
According to Grayscale Investments, the world's largest cryptocurrency asset manager, the past 3 to 6 months have shown signs of a growing shift towards moving mining activities outside of China, particularly to the United States and Canada.
There has been distrust between miners and the Chinese government since April 2019, when the National Development and Reform Commission (NDRC) of China included bitcoin mining on a list of industries it planned to phase out over time.
It was only when Chinese President Xi Jinping's called for increased efforts in blockchain development was bitcoin mining prohibited again in the final quarter of 2019.
The Chinese government has a fraught relationship with bitcoin and with China looking to launch the world's first sovereign digital currency in 2020, it could again move to ban mining operations in Mainland China at any time.
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The United States and Canada offer a less volatile environment for mining companies and have clear legal framework to work within and regulated stability within an established financial system.
Johnson Xu, a senior analyst at TokenInsight says, “We have seen waves of mining farms start to build their infrastructures outside of China, particularly in North America in 2019.” One noticeable investor was Chinese powerhouse Bitmain, who launched the world's largest mining farm in Milam County, Texas.
Coronavirus Is Also Affecting Chinese Dominance
The shift in mining to the United States also coincided with the outbreak of the coronavirus which resulted in strict quarantine measures and ultimately stifled the Chinese economy.
Mining manufacturing companies were badly affected, with the likes of Bitmain and Canaan issuing notices of delays of after-sales services, which will result in delays in production and shipping.
This could not have happened at a worse time for the mining sector as miners' race to replace their old equipment in time for the May 2020 halving.
Will North America Finally Overtake China’s Dominance?
Despite the growing shift towards mining in the United States and Canada, China will continue to dominate the market for the foreseeable future. It has an established large scale mining infrastructure and with Bitmain it also has direct access to the latest mining hardware and advancements. All of this is fully dependent on the Chinese Government continuing to permit it.
North America is increasingly being earmarked as a more favorable location for large scale mining operations, and mining farm investment is expected to increase at an accelerated rate. This will impact the Chinese market with growth expected to continue but at a slower rate in 2020.
In all, it’s hard to see any nation flipping the Chinese dominance. However, I do believe it will be eaten away at and maybe in a few years North America will be the mining hotbed. But for now, China and Bitmain will continue to rule supreme.
Author: Ronan Mullaney