China May Curb Electricity for Bitcoin Miners: Will Prices Tank?

China is cracking down on bitcoin miners. (See also: China Intensifies Crackdown On Bitcoin Mining.)

According to reports, the People’s Bank of China (PBOC) outlined a plan to curb “some” bitcoin miner operations in a closed-door meeting on January 3. The plan involves investigating power consumption of bitcoin miners to determine whether their use of free or cheap electricity use has distorted power prices in those areas.

Most studies and anecdotal reporting state that China is home to a majority of bitcoin mining operations. The country is home to 71 percent of overall bitcoin mining pools, as of September 2017.

According to Jihan Wu, CEO of China-based Bitmain, 70 percent of bitcoin mining rigs in the world today are made by his company. Bitmain also owns the world’s biggest bitcoin mining facility in Inner Mongolia.

“By far and away, the country where most of this (bitcoin) mining is taking place is China,” said Garrick Hileman, University of Cambridge Research Fellow, in an interview last month.

According to Hileman, the biggest driver for miners setting up shop in China is the country’s offer of cheap electricity, thanks to cheap coal and, in some locations, free hydropower. Miners often set up shop in such areas. The move benefits power companies as well because they earn cash by diverting surplus or idle power to mining operations. 

(China has the world's largest concentration of cryptocurrency mines.)

However, bitcoin’s electricity use has recently gained notoriety after new reports outlined its massive and unsustainable power requirements. Craig Erlam, senior market analyst with Oanda, said electricity usage will remain a “significant challenge” for it in the years ahead. China’s move is probably a response to these concerns. 

Bitcoin’s price slid downwards after news about the Chinese government’s actions. This is because bitcoin’s price depends on the number of coins in circulation. A crackdown on miners could potentially cut back the number of coins available in the market. (See also: Do Bitcoin Mining Energy Costs Influence Its Price?)

But the chances of such an occurrence may be low since the Chinese government’s action is reserved for “some” miners. Depending on the miners selected for investigation and their scale of operations, a crackdown may have a negligible impact on bitcoin’s price or even on energy use. Alternately, they might even shift operations to neighboring Mongolia.  

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.001 bitcoin. 

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