Is the unrest in Kazakhstan hurting bitcoin?

Protests and ongoing violence in Kazakhstan have an unexpected consequence: deprived of an internet connection, bitcoin miners in the Central Asian country can no longer contribute their computing power to the network that underpins the best-known cryptocurrency. but following mining ban in china, last May, Kazakhstan had become a stronghold of this activity. Its miners would provide between 12% and 18% of bitcoin’s network computing power, called hash rate. Do the shelves explain the cryptocurrency’s decline since Wednesday (-$3,000 in 24 hours to $42,800 on Thursday night)? Two experts at Romandie doubt this.

Since this summer, Kazakhstan has collected a large number of mining rigs formerly based in China. Thanks to its proximity to its big neighbor who no longer wants crypto, but also to its relatively cheap electricity (often from coal) and its climate allowing computers to be cooled at low cost that are running at full speed to protect the bitcoin network. . . The country has also adopted a very pro-crypto policy, although it has been questioned in recent weeks amid power shortages.

market effect

Bitcoin’s decline since Wednesday is actually explained by “a simple market effect, in the same way that when Elon Musk makes positive statements about bitcoin, the price tends to go up, he believes. Yves Bennaim, cryptography specialist. News from Kazakhstan is wrongly analyzed as negative. It is also very likely that investors will think they will be, which will trigger the sale, and that they will anticipate this move by selling in anticipation of the drop, then repurchasing lower.

But computing power has no direct implication on the price of bitcoin, according to the founder of the 2B4CH think tank, who recalls that at the beginning of the cryptocurrency, only two machines guaranteed its operation, that of the cryptocurrency’s creator, Satoshi Nakamoto, and the person he was with. made the first cryptographic transaction, Hal Finney. In short, “the technology behind bitcoin automatically scales with the computing power allocated to it, up and down, to keep the network stable.”

Less competition for rewards

The mining activity consists of solving a computational calculation to secure the Bitcoin network. And the computer that arrives first receives a reward, currently 6.25 bitcoins. “The consequence of excluding Kazakhstan-based miners is that competition has become less for this reward, continues Yves Bennaïm. This could therefore encourage other miners, who have stopped this activity because they have less efficient machines, for example, to resume mining.

Lionel Jeannerat, a businessman from Neuchâtel in contact with miners in different parts of the world, draws a parallel with the ban on mining in China last May: “Chinese miners accounted for 50 to 60% of the computing power. This ban led them to redeploy elsewhere, with a better geographic distribution.” From around $59,000 in early May, bitcoin dropped below 30,000 on July 21, before rising again to reach an all-time high in early November at nearly $69,000.

According to Lionel Jeannerat, “Thursday’s drop is above all indicative of the state of the bitcoin and crypto market, which has not had a clear direction for months. The slightest news makes the general public or the media react a lot. But what is happening in Kazakhstan has nothing to do with bitcoin’s decline; decreases in hash rate 10 to 20% are quite common.”

Interruptions for 15 days

Mining withdrawal from Kazakhstan could affect Bitcoin network for fifteen days, concludes: “With less computing power, it will likely take a little longer to validate a block of transactions [et donc obtenir la récompense, ndlr], perhaps 11 minutes instead of the current 10 minutes. But the difficulty level of the calculations is automatically adapted approximately every fortnight, so it will likely be lowered during the next update and we will find a pace of a validated block every ten minutes.”

As for the price of bitcoin, it is mainly influenced by the decisions of the American central bank, remembers Mikkel Morch, director of hedge fund ARK36 specializes in crypto in Cyprus, in an email sent to Climate“Following the release of details of the last Fed meeting in December, which pointed to a decisive reduction in its expansionary monetary policy, investor sentiment turned negative, pushing bitcoin below the critical level of $46,000. Once that support was broken, liquidations followed immediately. We have clearly been in a downtrend for several weeks now, with no signs of reversing anytime soon.”

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