Unrest in the crypto-mining hotspot of Kazakhstan has led the price of Bitcoin and some other digital currencies to dive.
Protests began in the Central Asian nation last weekend, with many citizens in the west upset by the country’s ongoing fuel crisis, as well as general inequality and economic disparity. It has since spread across the nation, leading to internet blackouts and violent clashes on Wednesday.
Things reached an even grimmer stage on Thursday with a message from the Kazakh leader.
The country’s president, Kassym-Jomart Tokayev, confirmed that he authorized the use of lethal force against the protestors, whom he has dubbed “bandits and terrorists”.
While it is difficult to pin down exact numbers, emerging reports suggest that dozens of protestors have been killed and hundreds more wounded, while authorities say that at least 18 members of Kazakhstan’s security forces have been killed.
Amidst this shocking violence and unrest, cryptocurrency prices have taken a dive this week. At the time of writing, the situation in Kazakhstan has contributed to a 3.46% drop in the value of Bitcoin (BTC) over the last 24 hours.
But why are these events having such an effect on cryptocurrency?
Why are there so many crypto miners in Kazakhstan?
After the United States, Kazakhstan is the second-largest crypto-miner in the world.
That means that when Tokayev’s regime shut down the internet in order to disrupt the organisation of protests, they also shut down a huge amount of mining activity. This has had a major effect on worldwide Bitcoin mining activity.
Indeed, the global Bitcoin network hashrate had supposedly dropped by 12% just a few hours into the blackout, according to a tweet from The Block vice president Larry Cermak.
Internet has been down in Kazahstan for a few hours where roughly 18% if Bitcoin's hashrate is.
— Larry Cermak (@lawmaster) January 5, 2022
Looks like the impact on the hashrate is so far 12% drop just in the last few hours since internet went down. pic.twitter.com/FcTDsJ6R77
But why is Kazakhstan home to so many miners?
Kazakhstan is rich in oil, precious metals and uranium. But it has also played host to a rising number of cryptocurrency mining operations.
A number of factors have led to the crypto mining boom in Kazakhstan. The biggest is the fact that China has cracked down on digital currency. The Far Eastern superpower’s central bank effectively banned cryptocurrency earlier this year, claiming that it endangered the safety of citizens’ assets.
China had accounted for almost 80% of the planet’s Bitcoin energy use in September 2019, as a huge chunk of professional mining operations were set up in the country. Following the ban, miners have had to look elsewhere for a place to generate coins.
Kazakhstan is just over the border, so the first feather in its cap was how nearby it sits, while another was the country’s apparently abundant energy resources.
Research from the Financial Times indicated that more than 87,849 “power-intensive” mining rigs had moved from China to Kazakhstan by the end of November 2021.
This has helped to increase the cost of energy in Kazakhstan, with the problem becoming so severe that some of its coal power plants faced shutdowns due to overexertion and limits had to be placed on the energy consumption of newly-registered mining outfits.
It is unclear whether these outages and pressures on the nation’s power grid have been a contributing factor to the unrest we are now seeing.
Is a solution close?
So, what have crypto miners in Kazakhstan been saying and is a recovery in crypto prices in sight?
Chinese network 8BTCnews has reported that BIT Mining, one of the largest to move to Kazakhstan, has no plans to flee amid the growing crisis.
Even where miners might be willing to move their operations, doing so will be logistically challenging and time-consuming. Many miners in Kazakhstan have already had to uproot their operations from China.
Leaving again would mean finding a third home, which is easier said than done, as well as potentially costly.
As such, it seems that crypto prices could be in the mire until some sort of resolution is reached. Let's just hope it's a peaceful one for the Kazakh people.
In the meantime, most major cryptocurrencies, particularly those which rely on mining, may be in the red for some time.
Even so, digital currencies have weathered crises before. China’s ban on cryptocurrency initially appeared to be an enormous blow for Bitcoin in particular, but the currency has since recovered from the steep fall it suffered following the news.
Perhaps we will see a similar recovery this time, but in the meantime savvy crypto investors should keep their eyes peeled for news emerging from Kazakhstan.
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