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Kazakhstan turmoil slams bitcoin as key mining hub cut off

Internet shutdown and electricity shortages deal blow to world's No. 2 producer

Kazakhstan is one of the world's top hubs for cryptocurrency mining. (Source photos by AP and Reuters)

TOKYO -- Bitcoin prices have dropped more than 10% in recent days as widespread protests rock Kazakhstan, one of the world's top hubs for cryptocurrency mining.

Bitcoin hovered around the $42,000 mark late Friday night here, down from over $48,000 at the end of 2021, according to CoinDesk.

New bitcoins enter into circulation as a reward to miners for solving complex mathematical problems. The hash rate, which measures the total computing power used for mining, plunged Wednesday after the Kazakh government ordered a leading telecommunications provider to cut internet access across the country.

The shutdown came in a response to deadly protests over surging prices of liquefied petroleum gas, used as a fuel by many motorists in Kazakhstan. But internet access is also needed for bitcoin mining and transactions. The hash rate was down 15% from the start of the year as of Thursday.

Many cryptocurrency miners had moved to Kazakhstan to take advantage of cheap electricity there after neighboring China, then another leading hub, banned them in May 2021. Kazakhstan was responsible for about 18% of the global hash rate as of August, second only to the U.S., according to the Cambridge Center for Alternative Finance.

A protracted internet blackout could force bitcoin miners in Kazakhstan to close shop or move elsewhere. "Speculation that these operators could then unload bitcoins triggered a chain of selling," said the head of a major Japanese virtual currency exchange.

Internet access is not the only issue facing Kazakh cryptocurrency miners.

Though the ongoing protests were triggered by LPG prices, demand for electric power has been outpacing supply in Kazakhstan for some time, leading to emergency outages and rationing. Some believe that energy-intensive mining operations are partly to blame for the current turmoil.

Amid growing headwinds, "miners may be moving bitcoins from storage accounts to transaction accounts so they can lock in profits," said market analyst Yuya Hasegawa of Tokyo-based crypto exchange Bitbank.

Five thousand bitcoins has been moved into and out of accounts held by crypto miners.

The situation in Kazakhstan has highlighted how geopolitical risks can affect bitcoin, even though it is not issued or backed by any government. Political and societal factors are only expected to play a greater role in the cryptocurrency market, with El Salvador making bitcoin legal tender and Iran and Russia doubling down on bitcoin mining as a way to earn foreign currency.

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