Iran bans cryptocurrency mining for 4 months amid power cuts

A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken January 8, 2021. REUTERS/Dado Ruvic/File Photo/File Photo

Iran has banned the energy-intensive mining of cryptocurrencies such as Bitcoin for nearly 4 months, President Hassan Rouhani said on Wednesday, as the country faces major power blackouts in many cities.

"The ban on the mining of cryptocurrencies is effective immediately until September 22 ... Some 85% of the current mining in Iran is unlicensed," Rouhani said in a televised speech at a cabinet meeting.

Bitcoin and other cryptocurrencies are created through a process known as mining, where powerful computers compete with each other to solve complex mathematical problems. The process is highly energy intensive, often relying on electricity generated by fossil fuels, which Iran is rich in.

As next month's presidential election approaches, the blackouts have been widely criticised by Iranians. The government has blamed the power cuts on cryptocurrency mining, drought and surging electricity demand in summer.

According to blockchain analytics firm Elliptic, around 4.5% of all Bitcoin mining takes place in Iran, allowing it to earn hundreds of millions of dollars from cryptocurrencies that can be used to lessen the impact of U.S. sanctions.

Iran's economy has been hit hard since 2018, when former President Donald Trump exited Tehran's 2015 nuclear deal with six powers and reimposed sanctions.

U.S. President Joe Biden's administration and other global powers have been in talks with Iran to revive the deal.

Iran has accepted crypto mining in recent years, offering cheap power and requiring miners to sell their bitcoins to the central bank. Tehran allows cryptocurrencies mined in Iran to be used to pay for imports of authorised goods.

The prospect of cheap power has attracted miners, particularly from China, to Iran. Generating the electricity they use requires the equivalent of around 10 million barrels of crude oil a year, or 4% of total Iranian oil exports in 2020, according to Elliptic.

China crackdown forces crypto mining operators to end operations

After Friday’s crackdown, several firms said they are looking to move their business overseas, especially North America.

China lost its position as a global crypto trading centre after it banned crypto exchanges in 2017 [File: Andrey Rudakov/Bloomberg]

Cryptocurrency mining operators, including Huobi Mall and BTC.TOP, are suspending their China operations after Beijing stepped up its efforts to crack down on Bitcoin mining and trading, sending the digital currency tumbling.

A State Council committee led by Vice Premier Liu He announced the efforts late on Friday – the first time the council has targeted virtual currency mining, a big business in China that accounts for as much as 70 percent of the world’s crypto supply.

Crypto miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify virtual coin transactions in a process that produces newly minted cryptocurrencies such as Bitcoin.

Bitcoin took a hammering after the latest Chinese move and is now down nearly 50 percent from its all-time high. It shed as much as 17 percent on Sunday, before paring some losses and was last trading steady in Asia.

Investor protection and prevention of money laundering are particular concerns of governments and financial regulators who are grappling with whether and how they should regulate the cryptocurrency industry.

US Federal Reserve Chairman Jerome Powell turned up the heat on cryptocurrencies last week, saying on Thursday that they pose risks to financial stability and indicating that greater regulation may be warranted.

A shift to overseas

Huobi Mall, part of cryptocurrency exchange Huobi, said in a statement late on Sunday that all its custody businesses have been suspended.

“Meanwhile, we’re contacting overseas service providers, to pave way for exports of mining rigs in the future,” Huobi Mall said via its official Telegram community, and asked clients “not to worry and calm down”.

BTC.TOP, a crypto mining pool, also announced the suspension of its China business, citing regulatory risks.

Founder Jiang Zhuoer said in a microblog post via Weibo that in the future, BTC.TOP will mainly conduct crypto mining business in North America.

“In the long term, nearly all of Chinese crypto mining rigs will be sold overseas, as Chinese regulators crack down on mining at home,” he wrote.

China has already lost its position as a global cryptocurrency trading centre after Beijing banned crypto exchanges in 2017.

“Eventually, China will lose crypto computing power to foreign markets as well,” Jiang said, predicting the rise of US and European mining pools.

HashCow, another crypto miner that owns 10 mining sites in Chinese provinces including Xinjiang and Sichuan and sells computing power to investors, said it will fully comply with government regulations.

In a statement to clients, HashCow said it will suspend buying new Bitcoin rigs, and promised a full refund to those investors who had placed orders for computing powers but had not yet started mining.

Risk-adjusted returns

Aside from the sheer scale of the slump in virtual currencies last week – the Bloomberg Galaxy Crypto Index fell almost 40 percent, the most since the pandemic turmoil in March last year – significant intraday price swings have also captivated investor attention.

Still, RBC derivatives strategist Amy Wu Silverman argued in a note Sunday that, based on a measure of risk-adjusted returns known as the Sharpe ratio, Bitcoin has done better than shares in Tesla Inc., the SPDR S&P 500 ETF Trust or Invesco QQQ Trust Series 1.

Bitcoin, Ether and meme virtual currencies like Dogecoin are still sitting on major gains over longer time-frames, such as the past year – about 12,000 percent in the case of Dogecoin.

For Ben Emons, managing director of global macro strategy at Medley Global Advisors in New York, Bitcoin is “firming its grip on markets through volatility, liquidity and correlation”.

Elon Musk changes his tune on bitcoin mining

New York (CNN Business) Bitcoin and other cryptocurrencies plunged earlier this month after Elon Musk said Tesla would stop accepting bitcoin as payment for its vehicles because of the huge amount of energy needed to mine bitcoin. But Musk might be having a slight change of heart.

Cryptocurrencies plunge after Elon Musk's bitcoin u-turn 03:35

A crackdown on bitcoin in China, where many miners operate, isn't helping. Neither is new guidance from the US Treasury Department on how to tax bitcoin.

Still, Musk's comments boosted shares of several top bitcoin mining companies, which own facilities that operate high-end hardware used to solve the complex mathematical puzzles required to generate new bitcoin.

Riot Blockchain (RIOT), Marathon Digital Holdings (MARA) and Hive Blockchain (HVBTF) all soared more than 10% Monday before pulling back a bit Tuesday morning.

Michael Saylor, the CEO of software firm MicroStrategy (MSTR), which owns a sizable chunk of bitcoin on its balance sheet and has continued to buy more as prices have dropped, said in a series of tweets Monday that he helped arrange the meeting between Musk and the bitcoin miners.

Saylor specifically mentioned Riot, Marathon and Hive, as well as five other miners, noting that they "have agreed to form the Bitcoin Mining Council to promote energy usage transparency & accelerate sustainability initiatives worldwide."

Shares of MicroStrategy rose 5% Monday but the stock, just like shares of Tesla and bitcoin miners, has largely mirrored the moves of bitcoin and other cryptocurrencies as of late.

MicroStrategy is up more than 20% this year but has plummeted nearly 65% from its 52-week high, making it one of several high-profile companies whose stocks have been whipsawed in the past year.