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“Finding suitable sites outside the mining hubs requires a lot of resources such as capital and network,” Yusan Zheng said during a Chinese-language Clubhouse discussion hosted by CoinDesk. “Only the most experienced and deep-pocketed miners will be able to carry out such a plan.” 

Local authorities in major Chinese mining hubs have started banishing crypto mining businesses since last Friday’s crackdown notice from the State Council. With little idle capacity in overseas hosting sites, some miners plan to go underground and continue to operate in other parts of the country, which might be only feasible for some of the biggest miners.

If mining power is too centralized, a few miners could manipulate the market by controlling the supply of bitcoin (BTC, -0.39%), or rewrite transactions on the immutable distributed ledger in the bitcoin network and shut out smaller miners with over 50% of the network’s mining power. 

Xinjiang, Sichuan and Inner Mongolia have been popular regions for Chinese miners due to their cheap electricity. While the miners run their mining machines with hydropower in Sichuan during the rainy season in the summer, they migrate to the other two regions that chiefly have coal in the winter. 

It is likely that miners will move from these mining hubs in western China to the east, where they can put the mining machines into factories, said Zheng, who was an early investor in bitcoin mining in China. The miners could also send a few mining machines to each household in the countryside, he said. 

While the crackdown will be focused on mining hubs, it might be harder to implement if mining sites are in multiple discreet locations across the country, according to Zheng. 

The electricity cost will certainly rise, but the factories and individual households could easily get millions of mining machines up and running again, Zheng said. 

Chinese mining firms have also been trying to find overseas hosting sites since the crackdown. 

But major global mining hubs such as Kazakhstan and Russia have little to no idle capacity to support new machines. Mining farms in North America are expanding their operations but that will take a long time to reach sufficient capacity to host the majority of Chinese miners’ mining machines, according to Ethan Vera, chief operating officer at Luxor. 

“It is impossible to move all of the mining machines in China abroad,” Zheng said. “Miners have to figure out a way to keep the machines running.”  

Bitcoin, the world’s largest cryptocurrency by market capitalization, was up Wednesday by 3.3% as of press time. BTC was below the 10-hour moving average and the 50-hour, a bearish signal for market technicians. 

BTC climbed from $37,600 at 20:15 UTC (4:15 p.m. ET) Tuesday to as high as $40,702 by 00:45 UTC Wednesday (8:45 p.m. ET Tuesday), an 8.2% increase based on CoinDesk 20 data. Bitcoin has settled at $38,224 as of press time. 

The announcement of a council to address problems associated with energy-intensive proof-of-work cryptocurrency mining led to a bounce in bitcoin’s price. However, the run-up couldn’t sustain itself. 

“We expect the selling to resume as this bounce fades off and BTC will test recent lows again,” said Pankaj Balani, chief executive officer of crypto venue Delta Exchange. “BTC will find a lot of resistance above $50,000 anyway and it will take some doing for BTC to move above the previous high.”

The total daily flow of bitcoin to exchanges is dipping. “Dry powder” refers to liquid assets waiting to be deployed; in the case of crypto that’s a balance on a wallet somewhere, and the amount being piled into exchanges seems to be slackening. Flow into exchanges suggest holders are planning to do something with the asset, i.e., sell.

On Sunday, 52,895 transfers were made to exchanges, the lowest amount since January 24 according to data aggregator Glassnode. Tuesday was also quite  low, with only 53,326 transfers. For comparison, the average daily number of BTC exchange deposits in the past six months was 72,361 transfers.

Over-the-counter crypto trader Henrik Kugelberg thinks new entrants into crypto might be losing interest in the up-and-down nature of BTC and that might be contributing to a slowdown in flow as selling has ensued. 

“It’s the weak hands and newbie investors with little or no experience of the bitcoin roller coaster that panicked,” Kugelberg said.

The second-largest cryptocurrency by market capitalization, ether, was trading around $2,720 as of 21:00 UTC (4:00 p.m. ET), gaining more than 5% over the prior 24 hours. The asset is below the 10-hour moving average but above the 50-hour, a sideways signal for market technicians. 

Ether jumped from $2,542 at 20:15 UTC (4:15 p.m. ET) Tuesday to $2,895 at 00:45 UTC Wednesday (8:45 p.m. ET Tuesday), a 13.8% climb based on CoinDesk 20 data. ETH is at $2,733 as of press time.  

The cryptocurrency market opened the week with bitcoin and ether volumes almost equal. Tuesday brought a major jump in ether volumes, much higher than BTC, according to CoinDesk Research data from major spot exchanges. For Tuesday, bitcoin volumes were at $49,553,564,503 versus ether’s $88,323,977,568 tally. 

The reversal in volumes between the two assets, which are rare but becoming more common, just proves traders in the crypto market aren’t just focused on BTC since there are alternatives, according to Sarah Potter, president of crypto educational platform YouCanTrade.

“From a traders’ point of view, you have a lot of choices to find a cryptocurrency that works for you,” Potter said. “And ether has potential.”

Since hitting an all-time high of 11.1 million ETH “locked” in decentralized finance (DeFi), on April 19, that number has steadily fallen, and was down more than 15% to 9.4 million ETH as of press time. 

Investors “lock” crypto in DeFi to generate a return in exchange for liquidity across these platforms. And while the total value locked in DeFi, which includes bitcoin and stablecoins, is trending up, it seems ether holders have decided to deploy their balances elsewhere. 

Jason Lau, chief operating officer of San Francisco-based exchange OKCoin, suggests that some ether holders might have some trepidation about the process of locking, given crypto’s notorious price gyrations. 

“I think the market is going to take some time to find the right balance given the violent drop last week,” Lau said. 

Digital assets on the CoinDesk 20 are in the green Wednesday. Notable winners as of 21:00 UTC (4:00 p.m. ET):

Equities:

Commodities:

Treasurys:

“Once the weekly stochastics turn up, we would add exposure to bitcoin because it remains supported by positive long-term momentum despite its correction,” Katie Stockton, founder, and managing partner of Fairlead Strategies, said in a weekly research note published on Monday.

Bitcoin’s weekly stochastic chart is trending south and displaying a value of less than 20, meaning the market is over-extended to the downside. A turn higher would confirm the bottom and open the doors for resumption of the broader bull run.

The stochastic oscillator compares the closing price of an asset with the range of its prices over a certain period to generate oversold and overbought signals that traders use as triggers for long and short trade entries. A reading below 20 implies oversold conditions, while an above-80 print indicates an overbought market.

The oscillator is one of the critical components of Dr. Alexander Elder’s triple-screen trading system published by Futures magazine in 1986.

While the stochastic indicator is flashing an oversold signal for the first time since 2019, the MACD histogram continues to print deeper bars below the zero line in a sign of strengthening bearish momentum.

Thus, a V-shaped recovery to $50,000 and higher looks difficult. “Resistance is now initially near $53,000, although it does not look in store for a near-term test,” Stockton noted, adding that intermediate-term momentum is to the downside.

Other analysts hold a similar view. Pankaj Balani, CEO of Delta Exchange, told CoinDesk on Friday that the recent price crash has eroded confidence, and bitcoin will take some time to regain upward momentum.

According to Julius de Kempenaer, a senior technical analyst at StockCharts.com, bitcoin’s immediate outlook remains bearish, as the lower-highs, lower-lows structure on the price chart remains intact despite the recovery to $40,000.

A move above the resistance band of $42,000-$43,000 would invalidate that bearish setup, although Kempenaer said he doesn’t foresee that happening in the short term.

“This rebound has potential towards the resistance area between $42k-43k, which will be hard to overcome straight out of the recent low,” Kempenaer said in an email. “Very likely more time is needed to build up a new base.”

Also read: Number of Bitcoin Holders Shoots to Record High, Data Shows

Bitcoin fell from $58,000 to nearly $30,000 in the eight days to May 19, shaking out excess leverage and weak hands from the crypto market. Both Stockton and Balani had warned of a sell-off to $42,000-$45,000.

The cryptocurrency has stabilized in the last few days, with the upside capped by the 200-day simple moving average, currently $40,635.

Also read: Michael Saylor: Mining Council Will ‘Defend’ Bitcoin Against ‘Uninformed’ and ‘Hostile’ Energy Critics

The council, spearheaded by Tesla CEO Elon Musk and MicroStrategy CEO Michael Saylor, will respect bitcoin’s fungibility, and does not advocate discrimination between so-called clean and dirty coins, said Peter Wall, CEO of Argo Blockchain.

“We’re not talking about Bitcoin code or block size or anything related to changing the nature of Bitcoin,” said Wall, whose publicly traded company was one of a handful of mining firms that met with Saylor and Musk over the weekend. “We all love Bitcoin the way it is, as a decentralized, permissionless system.”

Further, “discussions with the group so far have been very clear that one 1 BTC is 1 BTC, and that the fungibility and essential properties of Bitcoin shouldn’t be changed,” Wall said in an interview Monday evening. 

In the hours since Musk and Saylor revealed the meeting on Twitter Monday, hardened Bitcoin veterans have been comparing it to the controversial and ultimately unsuccessful New York Agreement of 2017. That closed-door gathering of startup executives was a major flashpoint in a highly acrimonious debate over how best to scale the Bitcoin network, and widely viewed as inimical to the currency’s ethos of leaderlessness. 

As then, many users are questioning how a small group of companies and two charismatic figureheads can profess to lead a global community where, by design, no one is in charge. 

“It’s extremely concerning that this group of bitcoiners wandered into this ‘meeting’ without any sense of self-awareness,” wrote Marty Bent, co-founder of Great American Mining, in his newsletter Monday. ”Do they not recall the last time there was a closed-door meeting that involved industry stakeholders who attempted to speak on behalf of an entire industry? How did they think this would turn out? The hubris is astounding.”

Wall said such concerns are unfounded in this case.

“This isn’t the start of OPEC,” he quipped. “The group is a way to get together and discuss. We are all independent, decentralized miners who have formed a voluntary group to influence the industry and each other.”

The group is not exclusive, he added, though it is still working out mechanisms for other mining operations to join. “This is an international challenge for Bitcoin and needs to be addressed on an international level.”

The council’s formation also comes as public figures such as “Shark Tank” star Kevin O’Leary are pushing the idea that bitcoins can be “clean” or “dirty” depending on how they are mined, and that green-minded institutional investors can, and should buy only the former. 

Throughout his conversation with CoinDesk, Wall said the council’s two goals were to promote disclosure of and improve energy practices. Beyond those broad objectives, the companies haven’t agreed on much else, he said.

“What we do want to do is to make sure valid ESG concerns about people mining bitcoin with coal are being addressed,” Wall said, referring to the shorthand for environmental, social and corporate governance. “At this point, It’s not going any further than that.”

When asked about the efficacy of carbon credits, he declined to speak on the council’s behalf. “We haven’t gone beyond the two things I’ve laid out, which is energy transparency and improving sustainable mining practices.”

Pressed on how promoting mining transparency squared with protecting fungibility, Wall said the council wasn’t considering labeling which coins were mined sustainably and which ones with coal-powered equipment. The information would begin and end on the company level, he said. 

“What we’re saying is we need to promote energy transparency around individual miners, not necessarily about coins that are coming out from individual miners,” Wall said. The question is  “what kind of energy mixes are individual miners, publicly traded miners, using, with the goal to then take that knowledge and encourage people to move more towards renewables.”

Besides Argo, the other miners in the group are Hut 8, Galaxy Digital, Riot Blockchain, Marathon, Core Scientific, Hive Blockchain and Blockcap. Combined, they control less than 10% of the global computing power on the Bitcoin network, Coin Metrics co-founder and Castle Island Ventures partner Nic Carter estimated. Notably, all of them are based in North America; much of the environmental controversy centers around China, where mining activity is concentrated and said to rely heavily on coal and fossil fuels in areas like Xinjiang and Inner Mongolia.

Fred Thiel, CEO of Las Vegas-based miner Marathon Digital Holdings, said he wasn’t on the call Sunday but broadly seconded Wall’s comments.

“It’s more just an interest group that wants to get together and discuss,” Thiel said in an appearance on CoinDesk TV during Consensus 2021. “I think if you look at the ambitions of the council, you’ll find that the council wants to be open to anybody who’s a miner and it’s really about sharing best practices.”

In other words, “nobody’s trying to centralize or control anything,” he said.

In 2021, listed firms have to meet institutional investors’ expectations for corporate social responsibility, Thiel pointed out. “For a publicly-traded company with over a $2 billion market cap, ESG is important to our shareholders.”

Saylor, the MicroStrategy CEO who claims to have organized the group, is scheduled to speak at Consensus 2021 Tuesday afternoon.

UPDATE (May 25, 15:00 UTC): Added geographic context.

UPDATE (May 25, 16:35 UTC): Added comments from Marathon Digital Holdings CEO.