Bitcoin price fell about 18% over the weekend and one of the factors behind this drop was a power outage in China’s Xinjiang region, which caused a 45% drop in hash rate.
Bitcoin’s hash rate measures the total combined computing power used to mine and process the cryptocurrency.
Another factor behind Bitcoin’s price drop was speculation that the US Treasury would charge various financial institutions with money laundering using cryptocurrencies.
Ran Neuner, co-founder of Crypto Banter, host of CNBC’s Crypto Trader and CEO of OnChain Capital, called the power outage “a bit scary” because it showed significant risk to Bitcoin investors.
Neuner said to Kitco’s editor-in-chief, Michelle Makori, “What happened this weekend was a bit scary because there was a power outage in a province in China. We didn’t know about the power outage, but we saw Bitcoin’s hash rate dropped by 45%. “
Investors were concerned about whether Bitcoin is really as decentralized as one might initially think, Neuner added.
“What that means is that 45% of miners have the computers, mine Bitcoin and create or confirm the transactions, dropped 45% of them. We have not seen such a drop since 2017, ”he said. ‘That set off a number of alarm bells. Why? Because if something is so truly decentralized, if 45% of the network is in one province in China, and we know that China has conflicting views on Bitcoin … what happened was people started selling their Bitcoin because they go to Bitcoin started looking and say wait a minute, maybe this decentralized currency isn’t that decentralized after all. ”
This fear contributed to what Neuner described as “the greatest liquidation in [Bitcoin’s] history.”
The silver lining to this event is that now that more Bitcoin investors are aware of the risks, an effort can be made to further decentralize Bitcoin mining away from China.
“We are pleased that this concern has finally become known and we know it, and now there is a challenge to get more mining done outside of China,” he said.
The power outage in Xinjiang coincided with a change of attitude towards Bitcoin by the Chinese government as Beijing called Bitcoin an “investment alternative” on Sunday after years of government crackdowns on the cryptocurrency.
“It is indeed a major turnaround,” said Neuner. “To get them to turn around and actually say that Bitcoin is an alternative investment, and other cryptocurrencies could also be considered, that’s a huge turnaround and that could bring China back to market, or specifically the speculation market, which exciting for the industry. ”
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