The digital asset could respond to liquidity risk. Crypto companies decide to “move” to the North American nation
Macroeconomic changes in traditional fiat money markets have opened spaces for cryptocurrencies such as Bitcoin (BTC). In less than a month, this digital currency recovered from its fall of USD 7,000 and, on June 16th, it quoted at USD 9,200. Different experts and analysts indicate that the price escalation of this cryptoactive is related to the “trade war” between the United States and China.
The commercial differences between these two regions are because these powerful countries have imposed tariffs to their goods; this makes everyday products more expensive for consumers.
In addition, the Chinese government’s regulations for cryptoactives make large companies in the mining industry, such as the Canadian company Squire Mining (which is publicly traded and one of the most hashpower) to move to the United States in order to minimize the impact of the Chinese Government regulations.
According to a survey by China Central Television’s (CCTV) financial channel, 70% of the total cryptocurrency mining is located in China and mostly in a single province of that country, which concentrates the levels of hashpower only in that region and would make the network vulnerable to censorship, manipulation and even to local government controls that restrict some operations with cryptoactives.
The crypto-companies are “moving”. Squire Mining, for example, signed a letter of intent to house more than 41,000 Bitcoin mining equipment (SHA-256) in the United States. This movement could mean a significant change in the mechanisms of Proof of Work (PoW), due to the cautious position that the Chinese Government maintains towards cryptography and move away some crypto companies.
Increase in Prices
About the financial tensions between these two countries, the CEO and founder of Digital Currency Group, Barry Silbert, suggested that the BTC price increase coincided with the breakdown of talks between Beijing and Washington DC.
According to the cryptocurrency defender, Bitcoin is becoming a “refuge” for investors at dramatic times in global economy. The businessman gave examples in which the value of BTC increased whilst the traditional stock markets collapsed. “If you look at the last five years, when the Brexit happened, Bitcoin went up. When Grexit happened, Bitcoin went up”, he said.
On the other hand, some analysts of JP Morgan think that the Bitcoin price could only be a repeat of the scenario that took place at the end of 2017.
But it is not just about price escalation. Because of the “trade war” between the United States and China, Bitcoin could act as a hedge against risk liquidity; this is, having the ability to respond efficiently to meet financial commitments. However, to achieve this purpose definitively, the digital currency would have to overcome the volatility that initially characterized and affected it.
Contribution to Decentralization
On the other hand, the expansion of the mining infrastructure to other countries would make more feasible the decentralization that blockchain users seek, by making the network, mostly constituted in China, migrate and be more resistant to governmental interference.
Equipment for mining is being produced mostly in China, but the facilities built in the United States would enjoy more stable regulatory environments, because this country seeks the implementation of protocols to manage mining.
The scenario could change. China, which has shown more openness towards blockchain technology than towards the adoption of cryptoactives, could establish more permissive regulations with cryptoactives in the future according to what it considers pertinent. This would maintain a greater concentration of mining.
The price of Bitcoin -which in February reached USD 4,000, went through the 7,000 and is quoted now at 9,000- could recover not only in response to commercial tensions, but with the growth of the mining community, in properly regulated environments, and the use of renewable energies that do not hinder this activity.
By María Rodríguez