The price of Bitcoin fell by about 18% over the weekend and one of the factors behind this decline was a power outage in the Xinjiang region of China, which caused a 45% drop in the hash rate.
The Bitcoin hash rate measures the total combined computing power that is used to extract and process cryptocurrency.
Another factor behind the sinking of Bitcoin prices was the speculation that the US Treasury would have charged several 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 little scary” because it highlighted a major risk for Bitcoin investors.
Speaking to Kitco’s chief editor Michelle Makori, Neuner said that “what happened this weekend was a little scary because there was a power outage in a province in China. I didn’t know about the power outage, but I saw that the Bitcoin hash rate dropped by 45%. ”
Investors have worried about whether Bitcoin is really as decentralized as one might initially think, Neuner added.
“What this means is that 45% of miners have computers, exploit and create Bitcoin or confirm transactions, 45% of them have given up. I have not seen such a drop in 2017 “, he said. “It simply came to our notice then. Why? Because if something is so decentralized, if 45% of the network is in a single province in China and we know that China had conflicting opinions about Bitcoin … what happened, people started selling their Bitcoin for that they have started looking at Bitcoin and say, hold on, maybe this decentralized currency is not so decentralized after all. ”
This fear contributed to what Neuner described as “the largest liquidation in [Bitcoin’s] history.”
The silver line of this event is that now, as more Bitcoin investors are aware of the risks, there could be an effort to further decentralize the exploitation of Bitcoin away from China.
“We are glad that this concern has finally come out and we know it, and now there is a challenge to do more mining 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 crackdown on cryptocurrency.
“It’s really an important change,” Neuner said. “To get them to come back and start saying that Bitcoin is an alternative investment, and other cryptocurrencies can be considered, this is a huge turnaround that could bring China back to the market or, specifically, to speculation market, which is super interesting for the industry. ”
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