On June 20th, Hong Kong-listed company Lotto Interactive (8198.HK) announced that its wholly-owned subsidiary in Sichuan had received a notice from the local power company. The notice demanded an immediate power cutoff, effective from 9 p.m. the previous day, citing official directives to shut down cryptocurrency mining operations.
This development sent shockwaves through the crypto community. The affected data center was Lotto Interactive's largest in mainland China, providing comprehensive services including hosting, hardware support, and electricity for mining operations. The sudden power termination was expected to severely impact the company's revenue.
More significantly, this event marked a pivotal moment for the entire Bitcoin mining industry in China. By June 20th, nearly all Bitcoin mining facilities in Sichuan—then the world's largest Bitcoin mining hub—had been collectively disconnected from the power grid. Mining farms that failed to relocate in time faced substantial financial losses.
Why Sichuan Was a Global Bitcoin Mining Hub
Sichuan province, with its abundant hydropower resources and numerous hydroelectric plants, offered exceptionally low electricity costs. This made it an ideal location for power-intensive Bitcoin mining operations. At its peak, a single mining farm in Sichuan could host over 210,000 mining rigs.
Media estimates indicated that approximately 8 million kilowatts of electricity load were dedicated to cryptocurrency mining in the region. Large mining facilities were typically located near hydroelectric power stations, identifiable by their massive cooling fans and large-scale transformers, often situated directly beneath high-voltage power towers.
The Regulatory Backdrop for the Crackdown
The action against Lotto Interactive's subsidiary was part of a broader, coordinated national effort. The notice served to the company explicitly referenced a official directive aimed at "cleaning up and shutting down virtual currency 'mining' projects."
This move in Sichuan followed similar regulatory tightening in other Chinese provinces known for mining, including Inner Mongolia, Xinjiang, and Qinghai. However, the shutdown in Sichuan was notably swift and comprehensive. A report from a major Chinese financial newspaper on June 18th detailed a provincial notice that required power companies to identify and shut down all virtual currency mining operations by June 20th.
The notice also urged central and state-owned power generation enterprises in Sichuan to self-correct and immediately stop supplying electricity to mining projects. Additionally, city and state governments were tasked with conducting thorough inspections to ensure immediate closures.
The Market Reaction: A Short-Term Dip Followed by Recovery
The closure of China's major mining hubs was expected to introduce short-term volatility into the Bitcoin price. Indeed, data from CoinMarketCap showed significant price movement on June 20th. The price of Bitcoin fell from approximately $35,896 to around $33,432 over a seven-hour period during the Asian trading day—a drop of about 7%.
This sell-off pressure was primarily attributed to investors in Greater China reacting to the negative regulatory news. However, the price decline was short-lived. Bitcoin experienced a V-shaped recovery over the next seven hours, completely reclaiming its lost ground as the European and American trading sessions began.
This price action demonstrated a clear divergence in market sentiment between regions. While investors in Asia were selling, investors in Western markets were buying, effectively absorbing the selling pressure.
Why Did Western Investors View the News Differently?
The differing reactions highlight contrasting regulatory environments and evolving institutional attitudes towards cryptocurrency.
In Western markets, cryptocurrencies have increasingly gained recognition as a legitimate, though highly speculative, alternative asset class. Major financial institutions have begun offering crypto-related services, and regulatory frameworks in jurisdictions like the United States and Hong Kong are moving towards licensing regimes for crypto businesses. This trend towards regulation, while imposing rules, also confers a degree of legitimacy.
Furthermore, the underlying blockchain technology continues to generate significant interest and investment across various industries. The development of new applications and cryptocurrencies built on blockchain technology indirectly sustains demand for established cryptocurrencies like Bitcoin.
Every new asset class attracts its own liquidity, and Bitcoin is no exception. For investors with a high risk tolerance, it represents a novel diversification option outside of traditional stocks and bonds.
👉 Explore more strategies for navigating crypto market volatility
Frequently Asked Questions
What was the main reason for the Bitcoin mining crackdown in China?
The crackdown was part of a broader policy initiative by Chinese authorities to control financial risk and reduce energy consumption. Cryptocurrency mining was deemed a wasteful consumer of energy that also facilitated speculative financial activities outside of state oversight.
Will the shutdown of mining in China permanently affect Bitcoin?
In the long term, the impact is likely limited. While China was a major mining hub, the network is decentralized. Mining operations are already migrating to other countries with favorable conditions, such as the United States, Kazakhstan, and Russia, redistributing the global hashrate.
How does the price of Bitcoin recover after such negative news?
Bitcoin's price is influenced by global supply and demand. While news from one region can cause short-term dips, demand from investors in other parts of the world can quickly offset it. The asset's 24/7 global trading nature allows for continuous price discovery across different time zones.
Is Bitcoin mining still profitable after these changes?
Profitability depends on the cost of electricity, the efficiency of the mining hardware, and the current price of Bitcoin. As mining moves to new locations, operators will seek out the cheapest energy sources to maintain profitability. The overall network hashrate temporarily drops after such events, which can increase profitability for remaining miners until difficulty adjusts.
What does this mean for the future of cryptocurrency in China?
The event reinforces China's strict stance against decentralized cryptocurrencies for domestic use. However, it is actively developing its own central bank digital currency (CBDC), the digital yuan. The focus is on state-controlled digital currency innovation rather than permissionless crypto assets.
Should ordinary investors be concerned about such regulatory actions?
Yes, regulatory actions are a primary source of volatility in the cryptocurrency market. Investors must be aware of the high risks involved, including the potential for sudden regulatory changes in any major economy that can significantly impact prices. This market is best suited for those who can withstand substantial financial losses.