China's Efforts To Kill Bitcoin Fail, Here Are Three Reasons

Bitcoin persists despite attempts to eliminate it from the Chinese government. (photo: unsplash)

JAKARTA - Bitcoin (BTC) may have experienced its biggest coordinated attack over the past few months, but in this case, the investor community is not giving up. China outright banned mining in most regions after giving BTC miners two weeks notice and this led to the biggest single mining difficulty adjustment after the network hash rate fell by 50%.

Market sentiment around Bitcoin was already damaged after Elon Musk announced that Tesla would no longer accept Bitcoin payments due to the environmental impact of the mining process. It is still unknown whether China's decision was influenced or linked to Musk's remarks, but there is no doubt that the events had a negative effect.

A few weeks later, on June 16, China blocked cryptocurrency exchanges from web search results. Meanwhile, the Huobi derivatives exchange began limiting leveraged trading and blocking new users from China.

Finally, on June 21, the People's Bank of China (PBoC) instructed banks to close over-the-counter bank accounts and even ban their social networking accounts. OTC desks essentially act as fiat gateways in the region so without them, it would be difficult to exchange from Bitcoin to stablecoins.

As these events unfolded, some analysts were reluctant to describe the tactic as meaningless FUD, but in hindsight, it appears that China launched a highly planned and executed attack on the Bitcoin network and mining industry.

The short-term impact can be considered a moderate success due to the fall in Bitcoin price and growing concerns that a 51% hash rate attack could occur. Despite the maneuvers, the Chinese offensive failed in the end and this is the main reason why.

Hash rate recovered to 100 million TH/s

After peaking at 186 million TH/s on May 12, the Bitcoin network hash rate, the estimated total mining power, began to fall. The first few weeks were due to restrictions on the coal-fired territory, which is estimated to account for 25% of the mining capacity.

However, as the ban extended to other regions, the indicator hit a low of 85 million TH/s, its lowest level in two years.

Now the processing power of the Bitcoin network recovered to 100 million TH/s in less than three weeks. Some miners managed to move their equipment to Kazakhstan, while others moved to Canada and the US.

Peer-to-peer (p2p) marketplace is running

Although companies involved in crypto transactions have been banned from China, individuals continue to act as intermediaries — some of which have recorded more than 10.000 successful peer-to-peer transactions according to data from the exchange's ranking system itself.

Both Huobi and Binance offer a similar marketplace where users can trade several cryptocurrencies including USD Tether (USDT). After converting their fiat into stablecoins, transacting on regular exchanges or derivatives becomes possible.

Asian-based bourses still dominate spot volume

The total crackdown on trading from Chinese entities is likely to be reflected in exchanges previously based in the region, such as Binance, OKEx, and Huobi. However, looking at recent volume data, there is no significant impact.

Notice how the three 'Asian based' exchanges remain dominant, while Coinbase, Kraken, and Bitfinex are nowhere near their trading activity.

China's ban on Bitcoin mining and transactions may have caused some temporary hiccups and had a negative impact on BTC prices, but the network and prices have recovered in a better way than many expected.

Currently, there is no way to measure OTC transactions where larger blocks are traded but it is only a matter of time until these intermediaries find new payment gateways and routes.

The views and opinions expressed here are those of the author and do not necessarily reflect the views of Cointelegraph. Every step of investing and trading involves risk. You should do your own research when making a decision.