Since the start of the month, the price of Bitcoin has declined steeply. At the weekend, the cryptocurrency hit a one-month low when it traded below $10,000. It has since rebounded to just above that price in the hours leading up to press time.
While experts continue to speculate on the reason behind the recent price decline, a recent study by Ryze points to a contributing factor, one that could potentially linger.
A large concentration of Bitcoin mining operation is in China, with the Sichuan region in Southwest China notably home to a large chunk of the global bitcoin hashrate (computing power). Electricity tariffs in the area are cheap for miners and explain why some of the world’s largest mining pools, including Poolin, Slush Pool, and HaoBTC, operate from Sichuan.
In recent weeks, however, torrential downpours in the region as a result of the monsoon season has reportedly affected mining operations adversely. Since the downpours result in a decrease in the amount of electricity produced by hydroelectricity power plants in the region, miners have had to temporarily halt operations that consume a large portion of the electricity produced.
The CEO of Poolin, Kevin Pan, reportedly described the situation in a Weibo post, saying:
The flood peaks crossed the border and the [electricity] was cut off (even water and gas, etc.), and the [miners were] passively shut down…Some [mining farms] actively suspended operations for the sake of personnel safe, complete the evacuation ahead of schedule.
With most miners lowering their operating capacity, and some going on a temporary strike, their mining hashrate has declined significantly. But while the hashrate decline doesn’t directly affect the price of Bitcoin, the difficulty experienced by these large mining pools could be contributing to the price decline.
The reason isn’t farfetched. A halt in operation means that miners lose revenue, despite having bills to such as property leases to settle. These miners resort to selling off their crypto-holdings to exchanges to stay afloat, a fact highlighted by the increase in the value of miner outflow to exchanges in recent weeks.
With China’s monsoon season expected to last until late October, increased miner outflow to exchanges could continue, directly affecting the price of Bitcoin. Perhaps, if the global demand for bitcoins continues to match or outpace the amount offloaded to the market, will the cryptocurrency’s price stay afloat.
The Bitcoin price at the time of writing was $10184, while the market cap hovered above $188 billion.
