(Reuters) – Bitcoin (BTC-USD) mining is quietly making a comeback in China despite being banned four years ago, as individual and corporate miners take advantage of cheap electricity and a data center boom in some energy-rich states, miners and industry data show.
China was the world’s largest crypto-mining country until Beijing banned all cryptocurrency trading and mining in 2021, citing threats to the country’s financial stability and energy conservation.
According to Hashrate Index, which tracks Bitcoin mining activity, China fell to third place with a 14 percent share by the end of October after seeing its global Bitcoin mining market share drop to zero as a result of the ban.
A resurgence in Bitcoin mining, boosted by drilling rig maker Canaan Inc’s booming sales in China, could serve as demand and price support for the world’s largest cryptocurrency.
Wang, who works as a private miner in Xinjiang, said he started mining in the energy-rich region late last year. “Not much energy can be transferred from Xinjiang, so you consume it in the form of crypto mining,” Wang said, asking to be identified only by his surname. “New mining projects are under construction. I would say people are mining where electricity is cheap.”
The National Development and Reform Commission, China’s state planning body that issued the ban in 2021, and the Xinjiang government did not respond to faxed requests for comment from Reuters.
Beijing’s crackdown on the industry in 2021 has led miners to close local operations and flee to overseas markets such as North America and Central Asia.
The recovery in Bitcoin mining coincides with the digital asset reaching record highs in October, driven by US President Donald Trump’s pro-crypto policies and growing distrust of the dollar, making crypto mining more rewarding. But the cryptocurrency is down about a third of its October peak as global risk appetite wanes.
“The flexibility of Chinese policy comes when economic incentives are strong in certain regions,” said Patrick Gruhn, CEO of crypto market infrastructure provider Perpetuals.com. “The resurgence of mining activity in China is one of the most important signals the market has seen in years.”
China has not officially relaxed restrictions on bitcoin mining, but “even hints that China is loosening its policy could serve as a tailwind for bitcoin’s narrative as a global, state-resistant asset,” he said, pointing to industry data that points to renewed activity.
Bitcoin mining, an energy-intensive process that uses specialized computers to solve complex puzzles to earn Bitcoins, is particularly active in power-rich inland regions such as Xinjiang, according to miners and platform makers.
Sichuan-based Duke Huang, who quit bitcoin mining a few years ago due to China’s regulatory ban, said some of his friends had recently returned to work. “This is a sensitive area… But people who get cheap electricity are still mining.”
High bitcoin prices, as well as a glut of electricity and computing power after some cash-strapped Chinese local governments overinvested in data centers, also fueled the recovery, said a source at a Bitcoin mining rig maker who asked not to be identified due to the sensitivity involved.
This trend is also reflected in the sales data of mining equipment manufacturers. Canaan, the world’s second-largest maker of bitcoin mining machines, generated 30.3% of its global revenue in China, according to company filings; this rate was 2.8% after the crackdown in 2022.
China’s contribution to Canaan’s sales rose to more than 50% in the second quarter of this year, according to a source with direct knowledge who declined to be named because he was not authorized to speak to the media.
Canaan, which did not confirm its second-quarter sales breakdown, attributed its increased sales in China to U.S. tariff uncertainty that has disrupted U.S. sales this year, rising Bitcoin prices making mining more profitable, and a slight shift in China’s stance on digital assets.
The Singapore-based company said in an emailed statement that its operations are fully compliant with Chinese regulations but declined to comment on mining policies in China.
“R&D, production and sales of mining machinery are allowed in China,” Canaan said.
The surge in Bitcoin mining in China comes amid signs that Beijing is softening its stance towards digital currencies. These were once seen as a challenge to China’s fiat currencies and an incentive for capital flight.
For example, Hong Kong’s stablecoin bill took effect in August, allowing the Chinese city to compete with the United States in promoting a regulated market for fiat currency-backed cryptocurrencies.
China was also considering allowing the use of yuan-backed stablecoins to increase wider adoption of the currency around the world and catch up with a U.S. crackdown on stablecoins, Reuters reported in August, citing people familiar with the matter.
“Bitcoin mining is still officially banned in China. However, significant capacity continues to be operated,” said Julio Moreno, head of research at blockchain data and analysis firm CryptoQuant. CryptoQuant estimates that 15-20% of global bitcoin mining capacity currently operates in China. Liu Honglin, founder of Man Kun Law Firm, said it is difficult to destroy a profitable business. “Personally, I think government policies against mining will be gradually relaxed because you cannot completely stop such activities.”
(Reporting by Reuters staff; Editing by Muralikumar Anantharaman)
