Recently we have had to deal with a historical price correction of the bitcoin (BTC) price. The course flew from his all-time high (ATH) at $ 65,000 down more than 50%. Especially on Wednesday and Friday it went very fast. Where does this panic suddenly come from and did that panic end up?
Musk en China Bitcoin (BTC) FUD
The origins of the current panic initially seem to lie with Elon Musk. I wrote a column about this last week which you can read here again. Then we saw even more this week fear, uncertainty, and doubt (FUD) pass by. FUD is news that causes “panic, uncertainty and doubt” with a negative price movement as a result of many people selling out of panic.
The first message that shook the crypto market was that China will ban crypto. It was striking that major news platforms such as Reuters indeed brought it as if a major new ban had been imposed by China. In the end, it turned out to only be a repetition of the regulations that had already been introduced years ago. After the market seemed to recover from the shock and climbed back up, it hit again.
This time, China would go after bitcoin miners and ban mining completely. China is known for being a huge player in the mining world. Again it was Reuters that headed: “China promises to crack down on crypto miners.” However, various voices now suggest that this ban is not as serious as it sounds. But what if such a ban comes, would this be the end of Bitcoin?
No, it can actually have a positive effect
There are three plausible outcomes with regard to this prohibition; there will be no ban at all, there will be a partial ban or there will be a total ban. Do it here and there rumors the round that it will indeed turn out to be a partial ban involving ankle bitcoin mining with electricity from coal-fired power stations will be prohibited. But even if it does become a total ban, in my view it would still be a positive development for the long term.
In order for a blockchain to be as censorship-resistant as possible, the nodes must be as distributed as possible. If we look at the Bitcoin network, we see that China still 65% generates of all computing power and that this is where a large proportion of the miners are located. For many this is problematic as the network is not decentralized enough. In the situation where China bans mining, the hash rate will drop sharply. However, after this it will become easier for miners from other countries to mine.
As soon as the hash rate decreases, the difficulty will also decrease. This makes it easier to mine bitcoins. This is an automatic mechanism to boost competition among miners. In short, a total ban from China would be positive for many Bitcoiners as it will encourage more miners from other countries to start mining bitcoin, resulting in more decentralization!
But a partial ban as discussed earlier would also be good. This would mean that less bitcoin will be mined with the help of coal-fired power plants. This would reduce Bitcoin emissions and miners in China will really have to use cleaner energy sources (something they are already doing for the most part). This can further accelerate the demand and thus the innovation of green energy in that country. More importantly, Bitcoin will have a “greener” image worldwide. And who knows, Musk might get back on board.
It is difficult to say how far the mining ban will reach. In the coming months, we will mainly have to keep looking at the hash rate to see whether many miners in China are turning off their machines. You can change the hash rate here to follow. In any case, I think the panic in the market will linger for a while!
Can’t help it. ????
Thanks @ adam3us for sharing. pic.twitter.com/fOC8mVVGVX
— Jen Zhu (@jenzhuscott) May 22, 2021
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