What happened after Chinese Regulatory crackdown on BTC mining and trading?
With the release of China regulatory policy on Bitcoin mining and trading, as well as the adjustments in the crypto market over the past three years, Bitcoin computing power and user assets on trading platforms have gradually flowed out of China. More and more Bitcoin investors in China have chosen to go overseas.
Note: In theory, there are no exchanges in China, but according to user habit, this article labels Huobi and OKEx as “China domestic” platforms, and Binance, Coinbase and Bittrex as foreign platforms. The following data sources are obtained from data sites such as Glassnode and CryptoQuant.
1. Changes in Bitcoin holding on trading platforms
It can be clearly found that on September 4, 2017 and May 21, 2021, after the crypto market suddenly encountered regulatory policies, OKEx and Huobi’s Bitcoin holding showed obviously outflow signs. And Binance’s Bitcoin holding showed a steady upward trend.
The following graph shows the current Bitcoin holding of OKEx, HuobiGlobal, Binance and Bittrex. After May 19, 2021, the Bitcoin holdings of the first two trading platforms are on a downward trend, while Binance and Bittrex move toward the opposite direction.
Specifically, since May 19, the net inflows of Bitcoin on both OKEx and Huobi Global have been negative, and Huobi Global in particular, the decline has reached the highest value since November 2020.
Correspondingly, the three foreign trading platforms used by Chinese users: Binance, Bittrex, and Bitfinex, entered the acceleration period during the marked time. The total Bitcoin holdings of these three platforms rose from about 430,000 in December last year to 800,000 on late May, an overall increase of 86%.
After May 21st, Binance’s deposit volume increased dramatically, which could indicates that China domestic users will further transfer Bitcoin to overseas exchanges platform.
2. Bitcoin computing power changes
It is an indisputable fact that China’s share of computing power in the entire Bitcoin mining is declining.
In 2017, data showed that China accounted for 81% of the hashing power of Bitcoin mining pools, followed by Iceland with 5%; data from BTC.com in 2020 showed that China’s Bitcoin hashing power was about 55%; but due to regulatory restrictions, it is rapidly declining.
On April 15 this year, a mining accident occurred in Xinjiang. The research leader of The Block estimated that the incident affected about 20% of the overall Bitcoin computing power of the entire network. Bixin internally estimated that this proportion was about 20–25%. At that time, mining was banned in Inner Mongolia. We expect that about 80% of Chinese miners was in Xinjiang in April. Then it can be estimated that the current Bitcoin computing power in China may only be about 32–40%.
A very important factor in the decline in the percentage of computing power is that there is no clear domestic regulatory policy for Bitcoin mining. In particular, the government’s latest regulatory notice on May 21 will cause domestic miners to accelerate their relocation.
At present, miners’ first choices include Russia, Central Asia, North America and other overseas mines. In 2020, Russia (14% of computing power), Kazakhstan (7%), and the United States (12%). It is basically legalized mining in these countries. Among them, the United States has several larger mines. There are many mining-related listed companies.
We expect to see more Chinese miners move oversea or selling machines overseas in the second half of 2021, leading to a further increase in the computing power of these countries in 2021, while a further decline in China domestic computing power.
3. The trend of trading Bitcoin with fiat currency
This indicator shows the cost and trend of buying Bitcoin with legal currency in the region. We found that after September 4, 2017, the volume of China’s purchase of Bitcoin with fiat currencies has declined significantly.
4. Derivatives trading
In 2017, Japan was an important participant in the global crypto trading industry, but in the same year, the Japanese government began to crack down on leverage and derivatives trading. In 2021, although Japanese nationals are still trading various derivatives on overseas exchanges such as Binance, FTX, and BitMEX, the impact of the Japanese government’s new policies on the crypto industry is basically negligible. If China introduces the same policy, it is very likely that within two years, its influence on the overall crypto industry will also drop significantly.
The above chart can show that the leverage ratio of Huobi and OKEx has fallen sharply after May 19th.
The above chart can show that the leverage ratio of Binance and BitMEX has declined slightly after May 19th, and it is already in a state of recovery.