Securities Daily | Regulatory crackdown sets off a wave of rectification in the mining industry: Xinjiang and parts of Sichuan suspend power supply to mines, and many mining pool-related companies quickly divest domestic related businesses

Securities Daily reporter Xing Meng

Last Friday, the Financial Committee of the State Council proposed "cracking down on Bitcoin mining and trading" in a meeting. Affected by this, a rectification of the mining circle is taking place: many well-known mining pools and related companies are divesting domestic related businesses. Well-known mining pools such as Huobi Mining Pool and Litecoin Mining Pool have suspended providing mining machine hosting and other related services to mainland China. Mining pool service providers BitDeer and Mars Cloud Mining block IP access in mainland China. Well-known mining company BitMining is seeking to deploy overseas mining and plans to build mines in the United States and Kazakhstan.

The reporter found that while large mining farms have set off a wave of overseas mining, many small and medium-sized mining farms have not taken any action. Since a large number of mining machines are difficult to sell at an ideal price in a short period of time, and the high cost of overseas mining is even more unbearable, they are "difficult to move" and hope that local supervision can "hold high and let go" and leave some room.

Xinjiang and parts of Sichuan

“Suspend power supply to the mine”

"At present, the entire mining industry is in a state of panic." A senior practitioner of a mining industry self-media told the Securities Daily reporter, "In the past, everyone generally believed that Bitcoin was defined as a virtual commodity, and there were no relevant legal provisions on Bitcoin mining. Mining activities themselves may not be illegal, but this time the Financial Committee explicitly proposed to crack down on Bitcoin mining, which caused the entire industry to panic."

The reporter learned that the mining industry is now waiting to see the implementation of regulatory measures in Xinjiang and Sichuan. From the domestic situation, Bitcoin and other virtual currency mines show obvious seasonal distribution characteristics. During the flood season (summer and autumn), the mines gather in hydropower areas such as Sichuan and Yunnan, and during the dry season (winter and spring), they migrate to Xinjiang and Inner Mongolia, which are rich in thermal power resources.

"In the past two days, some mines in Sichuan have experienced power outages." A senior practitioner in the mining circle revealed to the Securities Daily reporter that this round of regulatory measures came very "violently". In recent days, parts of Xinjiang and Sichuan have suspended power supply to certain mines, and these mines have begun self-inspection and rectification.

In the view of this senior person in the mining circle, the industry is generally worried that Xinjiang and Sichuan may also continue Inner Mongolia’s strict regulatory measures and crack down on mining activities.

After the Financial Committee issued a strong statement to crack down on Bitcoin, Inner Mongolia became the first region to issue a policy to "crack down on virtual currency mining". On May 25, the Inner Mongolia Development and Reform Commission issued eight measures to strengthen the crackdown on virtual currency mining. Among them, not only did it mention that industrial parks, data centers, self-owned power plants, Internet companies, Internet cafes and many other entities involved in mining will be held accountable in accordance with relevant laws and regulations, but also that related companies and relevant personnel involved in virtual currency mining will be included in the blacklist of dishonest persons in accordance with relevant regulations.

"This will have a great impact on mining companies. There will be greater policy risks in engaging in mining during a period of unclear policies. Specific policies will be introduced in various places based on actual conditions. For example, whether hydropower mining in Sichuan will form special local policies requires further observation." Long Dian, founder of Huoxun Finance, told a reporter from Securities Daily.

At the same time, according to Sina Finance, the Sichuan Supervision Office of the National Energy Administration issued a notice on holding a research seminar on virtual currency "mining". The notice stated that according to the relevant requirements of the National Energy Administration, in order to fully understand the relevant situation of virtual currency "mining" in Sichuan, it was decided to organize a research seminar, which will be held on June 2, 2021.

"During the flood season, hydropower in Sichuan is relatively cheap. Because electricity is difficult to store or transport, a lot of redundant electricity is used for Bitcoin mining." Wu Hongliang, former head of public affairs at Bitmain, analyzed to the Securities Daily reporter that using resources such as "wastewater" during the flood season for Bitcoin mining can promote the consumption of surplus hydropower, which can not only boost employment but also bring considerable fiscal revenue to the local area.

"Stop service" and "Ban IP"

Many mining pools are rapidly divesting their businesses

In recent days, many well-known companies in the cryptocurrency and mining circles have stated that they will stop providing related mining machine services to users in mainland China in order to cope with the risks brought by policies.

It is understood that if a mining farm is a collection of Bitcoin mining hardware equipment, then a mining pool is a collection of miners' computing power. Specifically, a mining pool is an open, fully automatic mining platform where miners connect their mining machines to the mining pool, contribute their computing power to jointly mine and then earn profits.

"Huobi has suspended the provision of mining pool hosting services to domestic users." A person close to Huobi told the Securities Daily reporter that the pace of globalization of the mining machine mall business has been accelerating since this year. In order to focus on expanding overseas business, the mining machine mall decided to suspend providing relevant services to users in mainland China. The solutions for the mining machines held by old users will be notified to customers later.

The CEO of Litecoin Mining Pool, Jiang Zhuoer, said on Weibo that "joint mining business will no longer be open to mainland China, and mining will be mainly deployed in North America in the future." Previously, some media reported that Jiang Zhuoer had announced on Weibo that Litecoin Mining Pool would stop purchasing mining machines for customers in mainland China. However, the reporter found that the relevant Weibo did not exist. The reporter asked Jiang Zhuoer to verify this matter, but did not receive a reply as of press time.

Mining pool service providers BitDeer and Mars Cloud Mining have also announced that in order to actively cooperate with the regulatory spirit of relevant countries and regions and support the compliance development of the mining industry, they will block all IP addresses in mainland China to further ensure that the platform does not provide services to residents in mainland China. The reporter further found that the BitDeer official website is currently unavailable, showing "We cannot provide services to users in the region." The Mars Cloud Mining website is also unavailable and has similar statements.

BitMining, a US-listed company, announced that it would invest in mining farms in the United States and Kazakhstan. BitMining said it plans to invest more than $25 million to build a virtual currency mining farm in the United States with a wholly-owned subsidiary of BitDeer; and plans to invest more than $9 million to jointly build a mining farm in Kazakhstan with a company.

Wu Hongliang told the reporter of Securities Daily that the Financial Committee's heavy statement has a great impact on the mining industry. He said, "Due to this incident, a large number of domestic miners are now 'going overseas' to find suitable sites to build new mines, mainly concentrated in the United States, Kazakhstan, Russia, Canada and other places, which has also caused the local sites to become in short supply. In addition, many miners are also selling Bitcoin mining machines in China."

"The evacuation wave has begun, and many large mines have begun to seek opportunities to go overseas. In the medium and long term, the domestic mining industry will enter a phase of contraction, and 'going overseas' will become the norm," said Long Dian.

The reporter observed that compared with large mines choosing to mine overseas, small and medium-sized mines have not followed suit. "At present, some large mines have begun to deploy overseas. For small and medium-sized mines, the cost of 'going overseas' may be unaffordable. Small and medium-sized mines may face a wave of bankruptcy or a transitional model of family-based, decentralized or small workshop mining, but the cost will be very high." Ding Feipeng, director of the criminal department of Beijing Shangguang Law Firm, explained to the Securities Daily reporter.

"It is an inevitable trend for mining pools or mining farms to withdraw from key regulatory areas, or even 'go overseas'." Ding Feipeng analyzed to reporters that the withdrawal of mining farms or mining pools, on the one hand, is beneficial to energy conservation and environmental protection in the relocated areas, it is beneficial to reduce carbon emissions, and it is also beneficial to the price return of domestic graphics cards, hard drives and other accessories; on the other hand, upstream and downstream companies related to mining may face operating pressure, and related practitioners will also face the problem of re-employment. At the same time, power plants with excess electricity in certain periods may also face problems of energy consumption and reduced revenue.

Finally, Ding Feipeng reminded, "Under the latest regulatory situation, if you continue to engage in mining business, you may face pressure from electricity prices, land, taxes, environmental protection and other aspects. In the future, you will also face penalties such as joint law enforcement by multiple departments, suspension of business or being put on the untrustworthy blacklist."