[Bitcoin Now] Dropping to 40 Million Won... Mining Difficulty Eases as Chinese Mining Companies Disappear

Mining Difficulty Drops About 28%
Mining Companies Expect Over 35% Additional Profitability
Concerns Raised Over US SEC's Excessive Bitcoin ETF Review Standards

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] The leading cryptocurrency Bitcoin has fallen to the low 40 million KRW range. Recently, there are expectations that Bitcoin prices will rise as crackdowns on Bitcoin mining companies in China have led to a decrease in mining difficulty.

According to the domestic cryptocurrency exchange Upbit, as of 11:52 a.m. on the 5th, Bitcoin was recorded at 40.09 million KRW, down 2.09% from the previous day. It rose to 41.64 million KRW at 6:58 a.m. that day but has been declining since.

Bitcoin mining difficulty has decreased. According to the US economic media CNBC on the 3rd (local time), as Chinese mining companies that accounted for 65-75% of global Bitcoin mining disappeared, the mining difficulty for other mining companies dropped by about 28%. Bitcoin is produced through a process called mining, where computers solve complex calculations. To maintain a constant supply of Bitcoin, the mining difficulty increases as more people participate in the mining network. Conversely, if fewer people participate, the mining difficulty decreases.

When mining difficulty decreases, transaction fees also become cheaper, which can lead to a rise in Bitcoin prices. This is because market participants become more active in Bitcoin trading to take advantage of the lower fees. Remaining miners are expecting additional profits. Whit Gibbs, CEO of Bitcoin mining service company Compass, said, “Customers who want to mine expect higher profitability,” adding, “They will achieve an additional profit rate close to 35%.”

The regulation of Chinese Bitcoin mining companies, which influenced the decrease in mining difficulty, began in earnest in May. The government of the Inner Mongolia Autonomous Region in China regulated not only cryptocurrency mining but also related companies and individuals. Then, last month, regulatory authorities in Sichuan Province instructed local power companies to cut off electricity to companies suspected of mining cryptocurrency. As a result, 90% of all mining companies in China disappeared within a short period. The US economic media Bloomberg reported that the hash rate, which indicates Bitcoin’s computational processing power, plunged 17% in one day.

Meanwhile, criticism has been raised that the US Securities and Exchange Commission (SEC) is applying excessively strict standards in approving Bitcoin exchange-traded funds (ETFs). On the 3rd, SEC Commissioner Hester Peirce said in an interview with CNBC, “The SEC is scrutinizing cryptocurrency exchanges and asset managers more strictly than the standards applied to traditional stock-based products,” adding, “Personally, if the standards applied to other financial products had been applied to Bitcoin ETFs, at least one Bitcoin ETF would have been launched.” She also argued that the cryptocurrency market has matured compared to before, stating, “Many institutional investors and major individual investors are participating, making it similar to existing markets.”

Earlier, the SEC announced on the 23rd of last month that it would postpone the approval decision for Valkyrie, a US asset management company’s Bitcoin ETF, until August. Currently, there are a total of 12 Bitcoin ETFs awaiting approval from the SEC, including the ETF submitted by Ark Investment.