Sichuan Floods Expose Key Risk for Bitcoin Miners

Extreme weather conditions are being blamed for a dip in the global hashrate. Published charts suggested a 30 percent drop in the hashrate and this is being attributed to the recent flooding in China.

According to reports in The FT, the downpour at the end of last month exposed a key risk for the sector. The flooding in Sichuan province left hundreds of thousands of people homeless and destroyed many mining farms. The region is a hub for crypto miners due to its low power costs and a cheap hardware market.

China accounts for nearly 70 percent of the world’s Bitcoin mining activities, with Sichuan being declared ‘Bitcoin mining capital’, Bitcoin’s biggest mining pool, Antpool, is based in China.

Other observers are split on the explanation for the fall in hashrate, attributing the dip to a combination of the flooding, a heatwave in Europe and the lower price of bitcoin. Morgan Stanley analysts estimate that the Sichuan floods could only impact up to 8-10 percent of global bitcoin mining activity.

The debate over the reason for the hashrate decline is likely to rumble on for some time. However, what is certain is that the Chinese dominate the crypto mining industry and the concentration of activity in a region susceptible to frequent flooding, the province was also heavily affected by flooding 2013, there exists a significant ‘key man risk’ for the wider industry.

Bitcoin Hashrate

Despite the hashrate dropping due to the floods the hashrate has bounced back and is recovering, as shown in the chart above.

Owning, Occasionally Trading Bitcoin Is Legal in China, Prominent Lawyer Argues

Sa Xiao, a Council Member at the Bank of China Law Research Association, has recently argued that both owning and “occasionally” trading bitcoin in China is legal, as the country’s regulations currently don’t outright ban cryptocurrencies.

Speaking to local news outlet Beijing News, Xiao argued China’s regulations of virtual property include the right to trade as the owner sees fit. The lawyer’s views are in sharp contrast to those revealed by Chinese authorities, who have banned cryptocurrency trading, initial coin offerings, and more.

He noted that while owning cryptocurrencies has never been illegal in the eyes of Chinese authorities, it may be possible to be punished for dealing with cryptocurrencies. Specifically, he noted that running a BTC trading business that leads to client losses may lead to a punishment according to criminal law.

Notably, the Shenzhen Court of International Arbitration has late last year ruled cryptocurrencies like bitcoin should be protected by law as property, in a case that saw two parties dispute cryptocurrency possession at the end of a contract.

Similarly, the Shanghai Hongkou District Court in China recognized cryptos, including ether, should be protected by law, in a case where a defendant refused to return 20 ETH to an ICO investor.

Xiao didn’t specificy what could be seen as “occasional exchange” or more between individuals, nor did he point towards any figures in specific.

Earlier this year, it was reported the Chinese government was looking to ban all cryptocurrency mining in the country, in a move that would severely affect mining firms taking advantage of cheap energy in some of China’s regions.

Local investors’ interest in cryptocurrencies like bitcoin has seemingly been growing, so much so some believe bitcoin’s recent surge to test the $8,000 mark was aided by Chinese buyers. This, as the crypto’s rise coincided with US President Donald Trump announcing tariffs on hundreds of billions of dollars worth of Chinese goods.

Recently Garrick Hileman, a Macroeconomics Researcher at the London School of Economics (LSE) and the head of research at Blockchain.com, noted that the value of the Chinese yuan appears to be inversely correlated to that of bitcoin.