In brief
- Bitcoin mining is a profitable business during the rainy season in Sichuan, China, due to cheap hydroelectricity.
- As the rains dry up, mining profits take a hit, impacting on Bitcoin's hash rate.
- Some Chinese miners are looking to relocate part of their operations to countries with a more stable energy supply.
A recent slump in Bitcoin’s hash rate is down to the passing of the rainy season in Sichuan, China, according to AI and blockchain infrastructure firm Core Scientific.
In China, Bitcoin mining is carried out in areas with major rainy seasons, using cheap hydroelectricity. During the rainy season, from June to October, the dams are full and there’s a healthy supply of electricity—making Bitcoin mining a profitable enterprise.
However, when the rain dries up, mining Bitcoin in China is far less profitable, with prices tripling or quadrupling, according to Tarak Kulyk, senior vice president of blockchain business development at Core Scientific.
“The weather is a key driver of profit for many Chinese miners, as they can buy old equipment for cheap, but can only be profitable for five months of the year,” Kulyk, told Decrypt.
Bitcoin’s hash rate is a measure of the collective processing power of Bitcoin miners. “Since Bitcoin mining is energy-intensive, miners locate where the energy is cheapest. Once energy prices change, for example because of the wet season in China, miners relocate,” Ingo Fiedler, co-founder of the Blockchain Research Lab, told Decrypt.
In other words, when miners are relocating, they are offline, and thus not able to contribute to the Bitcoin hash rate.
The American alternative
Environmental factors are not necessarily as much of a factor in other countries where Bitcoin mining occurs, compared to China.
As a consequence of this relative instability, some Chinese miners are looking to relocate their operations. “Core Scientific is working with several Chinese players to move a portion of their fleet to North America, as our power is stable and doesn’t change materially over the year,” Kulyk said.
In the United States, Bitcoin miners also benefit from a more stable regulatory policy, according to Kulyk.
“Regulatory policy is far more stable in North America and can accelerate the digital asset space, given the changing views towards digital asset mining and sector being a national security priority,” Kulyk said.
Over the course of 2020, China’s dominance over the Bitcoin mining industry has slipped somewhat, though it still controls a substantial amount of the Bitcoin hash rate. The local mining industry has been hit by authorities cutting off access to subsidized electricity in some regions, following a report that slated Bitcoin mining as having “nothing to do with the real economy.”