The more things change in crypto, the more they stay the same.

At least, it seems that way when it comes to how countries treat the creation of cryptocurrencies.

You may remember the biggest bitcoin-mining story in 2021 was China’s crackdown on its own mining industry.

In May of 2021, China was home to over 70% of the bitcoin mining production. But later that month, there were reports of local Chinese governments forcing miners to shut down.

Overnight, miners faced orders to demolish their buildings and machines. Many Chinese provinces had even set up hotlines for citizens to inform the government of illegal mining operations.

In the span of two months, China’s share of the global hash rate – the term used to describe the collective computing power of bitcoin miners – fell to 0%.

After the ban, we saw the global bitcoin hash rate fall 70% lower from pre-crackdown levels.

Likewise, the price of bitcoin fell as much as 62% to a low of $29,000.

Luckily, that pain was short-lived…

The global hash rate has soared past its pre-crackdown levels to post two all-time highs this month.

And even though the crypto market is down nearly 50%, bitcoin is still 28% higher than its post-crackdown lows.

Yet, just last week, there was news of another country looking to ban bitcoin… and as I’ll show you today, one country’s crypto ban is another country’s crypto gain…

Cutting Off Your Nose to Spite Your Face

Russia is the third-largest bitcoin mining hub in the world, with 13% of the industry located throughout the country’s north and Siberian regions as of fall 2021.

Last week, the Russian Central Bank released a report claiming criminals were using cryptos for illicit activities… and that cryptos posed risks to the country’s financial stability. So they proposed a blanket ban on cryptos and crypto mining.

Since the release of the report, bitcoin has tumbled by 8%…

But Russia is far from the only country considering action against bitcoin mining in 2022.

Rising fuel and electricity costs led to protests that have rocked Kazakhstan… In response, the government’s first move was to cut off bitcoin miners from its electricity supply.

Then it shut down the country’s internet access, leaving bitcoin miners in the literal and figurative dark.

Now, Kazakhstan is not China, but it may come as a surprise to learn that the country was the second-largest bitcoin mining hub in the world before its shutdown. They were home to over 20% of the total bitcoin mining computing power.

Then there’s Iran, the seventh-largest bitcoin mining hub… In late December 2021, they instituted a mining ban until March, blaming the industry for winter blackouts.

And Kosovo, while not as large a player in bitcoin mining, also began the year by instituting a bitcoin mining ban of its own.

Now, we don’t blame you if this news causes concern. This may seem like another nail in bitcoin’s coffin if you’re just following the headlines.

But a dig into the data shows a much different story…

The Strength Remains

When China banned bitcoin mining, the ripple effect was clear.

As I mentioned, the global hash rate fell 70% from its pre-crackdown highs after China’s ban. That means 70% of the total machine power working to create bitcoin temporarily shut down.

Miners across the country pulled their machinery out of China and began looking for a new place to call home.

This time around, the story is much different. Even with actual bans across major bitcoin mining regions… and the threat of bans from others… bitcoin’s global hash rate has continued to rise.

In fact, it posted an all-time high two weeks ago, despite the bans already put into place.

You’re probably wondering, how can that be?

First, bitcoin miners are resilient. They’re able to find ways to keep their machines up and running after each new ban. So, the more resilient the miners are, the stronger bitcoin’s network and creation process becomes.

And second, when a ban creates a void in bitcoin mining, there are a few friendlier countries that can pick up the slack.

So, thanks to those bans I mentioned above, there’s a new dominant player on the bitcoin mining stage.

We’ll Take That $10 trillion

Since China’s ban, bitcoin miners worldwide have been racing to set up shop in one country: America.

As of fall 2021, 43% of bitcoin mining power was in the U.S., compared with just 5% a year earlier. And reports continue to show that the U.S. is consolidating more and more of that power.

Longtime readers know that Daily editor Teeka Tiwari has been banging the table about this shift since it began… Here’s how he summarized it last October:

China’s abandonment of its dominant bitcoin mining position will go down as the single-greatest destruction of a nation’s wealth outside of a war…

The strategic significance of being the hub for bitcoin mining cannot be overestimated.

Within five years, I believe bitcoin will be at $500,000. That’s a $10 trillion market China just gave away to its biggest rival: The United States of America.

Now the U.S. can add a few more countries to its “Thank You” list.

Overall, this is a tremendous positive for the bitcoin mining industry…

The U.S. is an incredibly business-friendly country relative to the rest of the world.

And there are legislators in states like Texas, Wyoming, Kentucky, and Georgia actively courting bitcoin miners to set up shop in their districts.

Additionally, the U.S. has a relatively abundant amount of electricity and steadily growing renewable energy sources… the latter of which generally offers electricity at a lower price.

The U.S. is also a stable democracy. Regardless of how gloomy our political climate seems, it’s nowhere near as chaotic and destructive as the countries bitcoin miners are fleeing.

And as investors of bitcoin and cryptocurrency in general, just ask yourself…

Would you rather have the majority of bitcoin creation under Chinese, Russian, or Iranian influence?

Or would you rather bitcoin mining be a predominantly American industry?

So, ignore the mainstream headlines when it comes to bitcoin.

As we’ve learned post-China crackdown, they rarely get it right, and they almost always miss the bigger picture…

The only thing they seem to create is excellent buying opportunities for investors who understand the long-term case for bitcoin and bitcoin miners.

If you’re looking for broad exposure to this trend, consider the Bitwise Crypto Industry Innovators ETF (BITQ).

It has hefty exposure to miners… but also includes companies in the broader blockchain ecosystem. So, the risk is spread, and it’s not a pure play on miners.

Right now, with bitcoin down nearly 50% from its November 2021 high, it’s as good a time as any to jump into this growing and strengthening trend.

Regards,

Michael Gross
Analyst, Palm Beach Daily