Bitcoin (BTC) may have suffered its largest coordinated attack in the past few months, but in this case the investor community has not surrendered. China banned mining in most regions after giving BTC miners a two-week announcement, and this caused the biggest adjustment in mining difficulties after the network hash rate dropped 50%.
The market sentiment surrounding 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 remains unknown whether China’s decision was influenced or related to what Musk said, but there is no doubt that these 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 restricting leverage trading and blocking new users from China.
Finally, on June 21, the People’s Bank of China (PBoC) ordered banks to close over-the-counter accounts and even blocked their social media accounts. The OTC desk essentially acts as a fiat gateway in the region, so without them it would be difficult to convert from bitcoin to stablecoins.
In the course of these events, some analysts were reluctant to describe the tactic as nothing more than meaningless FUD, but in hindsight, China appears to have launched a very well planned and executed attack on the Bitcoin network and mining industry.
The short-term impact could be seen as a modest success due to the collapse in Bitcoin price and mounting concerns that a 51% hashrate attack could take place.
Regarding Bitcoin mining and China, I wouldn’t believe anything you hear. I wouldn’t rule out the possibility that the Chinese Communist Party is attempting to orchestrate a 51 percent attack on the Bitcoin network. Stay vigilant.
– Danny Diekroeger (@dannydiekroeger) June 25, 2021
Despite the maneuvers, China’s attack ultimately failed, and here are the main reasons why.
The hashrate recovered to 100 million TH / s
After the Bitcoin network’s hash rate, an estimate of total mining power, peaked at 186 million TH / s on May 12, it began to decline. The first few weeks were due to restrictions on coal-fired areas estimated at 25% of the mining capacity.
However, when the ban extended to other regions, the indicator hit 85 million TH / s, its lowest level in two years.
As the data above shows, the processing power of the Bitcoin network recovered to 100 million TH / s in less than three weeks. Some miners had successfully relocated their equipment to Kazakhstan, others to Canada and the United States.
Peer-to-peer (p2p) markets will continue
Although the companies involved in crypto transactions were banned from the country, individuals continued to act as intermediaries – some of them recorded over 10,000 successful peer-to-peer transactions, according to the exchange’s own ranking system.
Both Huobi and Binance offer a similar marketplace where users can trade multiple cryptocurrencies, including USD Tether (USDT). After converting your Fiat to stablecoin, transactions on a regular exchange or a derivatives exchange are possible.
Exchanges based in Asia still dominate the spot volume
Full crackdown on the trading of Chinese companies would likely be reflected in the previously region-based exchanges such as Binance, OKEx and Huobi. However, looking at the most recent volume data, there was no noticeable impact.
Note that the three Asia-based exchanges continue to dominate while Coinbase, Kraken, and Bitfinex are nowhere near their trading activities.
China’s ban on Bitcoin mining and transactions may have resulted in temporary hiccups and negative effects on BTC price, but the network and price have rebounded better than many expected.
There is currently no way to measure the OTC transactions that trade larger blocks, but it is only a matter of time before these intermediaries find new gateways and payment routes.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.