Source: J.H. Akston
A ‘flash crash’ in the dollar-denominated prices of multiple popular cryptocurrencies, blockchain powered currency alternatives hailed as an escape from government fiat currencies and central banking monetary control, is being blamed on a coal mine explosion in China.
Beginning Saturday, and into Sunday, crypto prices crashed in a massive, widespread sell off after recently touching all-time highs. Tens of billions of dollars in value was erased, and crytpo holders liquidated billions as they sold into the plunge. With such an historically volatile class of assets, a violent correction is certainly not uncommon, but the underlying factors that precipitated this weekend’s crash are much more nuanced. And revealing.
The blockchain technology that powers cryptos like Bitcoin is famed as a ‘decentralized’ network – a distributed ledger – that offers a store of value independent from government manipulation and the deleterious effects of the central banking cabals. Yet, the weekend crash that is rattling retail crypto investors indicates that the network may have a centralization problem.
The system is powered by computing power, necessary to both mine cryptos like Bitcoin and process/validate the transactions, adding and validating blocks on the chain. The rate at which this is accomplished is called the ‘Hash Rate.’ As it turns out, an inordinate share of that computing power is concentrated in China. Specifically in the Xinjiang region of China, home to one of the world’s biggest Bitcoin mining networks.
On April 10, there was a coal mine explosion in Xinjiang, causing days of black outs that took the vital crypto computing power offline. This cut the hash rate by as much as 50% over the subsequent days, and was the critical factor sparking the sudden and steep sell off in cryptos.
This is a real life consequence of cryptos, like market-leading Bitcoin, being too centralized in China. Which begs another question: If a coal mine explosion in communist China can sink your crypto portfolio overnight, is crypto really the liberating force many believe it to be?
If your ‘decentralized’ crypto is at the mercy of the CCP and rolling blackouts in Xinjiang, it fails the core tenet of what makes it attractive, freeing currency from the effects of government control and incompetence (or worse).
Crypto traders and stakeholders in the West might want to consider that the communists in China could effectively turn off your Bitcoin, whenever and for however long they want to. This weekend’s events demonstrate just how real a possibility that is.
While alternatives to the central banking cabals are exceedingly necessary for individuals to avoid being monetarily raped by a few elites in a board room for the rest of our lives, we should be careful that the fervor doesn’t mistakenly put even more liberty-minded people under the thumb of Reds in Beijing, the pinkos in our midst notwithstanding.