The Impact of China's Mining Ban on Bitcoin's 2026 Forecast

As we approach 2026, the cryptocurrency market is displaying a notable divergence in its trends.

Key Takeaways

Bitcoin's market sentiment is currently showing risk aversion, with profits declining among holders.
A crackdown on mining in China has led to a decline in Bitcoin's hashrate, affecting network security.
Selling activity from miners and long-term holders is visible, influenced by market conditions and mining pressures.
Recent institutional investments indicate market resilience, suggesting the current downturn may be a healthy reset rather than a capitulation.

Inside China’s mining ban that could shape Bitcoin's 2026 outlook

On one side, there's a prevailing risk-off sentiment. Bitcoin (BTC) has failed to regain its pre-October crash levels, causing the percentage of supply in profit to plummet from 98% prior to the sell-off to about 63% currently. This reduction has pressured profit margins significantly.

Consequently, Bitcoin’s Net Unrealized Profit and Loss (NUPL) has dipped deep into the net-loss zone. From a technical perspective, this scenario resembles a classic capitulation pattern. However, an important divergence in the market hints that this phase may not necessarily be bearish.

Understanding Bitcoin's Weakness: Mining Shutdown and Sales by Long-Term Holders

Bitcoin’s supply dynamics are undergoing a quiet yet substantial change, largely due to increased pressure from China, where mining restrictions have tightened once again.

Specifically, the recent crackdown in Xinjiang has resulted in the shutdown of approximately 1.3 gigawatts of mining capacity, disabling around 400,000 mining rigs.

In simple terms, BTC miners are under significant pressure, as a considerable portion of Bitcoin mining in China has been rendered inactive. This shutdown has led to an approximate 8% decline in Bitcoin's hashrate, making the network temporarily more vulnerable to attacks.

Bitcoin

Source: Blockchain.com

As illustrated in the accompanying chart, Bitcoin's hashrate decreased from 1.12 billion TH/s to 1.07 billion TH/s within a week. Given that China accounts for around 14% of the total hashpower, this emphasizes how regional actions are exerting additional selling pressure on the cryptocurrency.

On-chain data corroborates this phenomenon. Throughout the fourth quarter, Asian exchanges have consistently exhibited net spot selling activity, while long-term holders (LTHs) have also been downsizing their positions, with selling trends rising over the past month or two.

In summary, Bitcoin is encountering pressure stemming from Asia. Conversely, U.S. Bitcoin spot exchange-traded funds (ETFs) have recorded their largest net inflow in over a month. This divergence could play a pivotal role in influencing Bitcoin's direction as we move closer to 2026.

The Role of Forced Selling in Shaping Bitcoin’s 2026 Outlook

The outlook for Bitcoin in 2026 is being shaped by a subtle shift in its supply dynamics.

Amid rising macroeconomic volatility and increasing mining restrictions in China, various cohorts of BTC holders are feeling compelled to sell assets to manage losses. Miners are particularly impacted, as evidenced by a notable shift to negative net position changes.

In simple terms, with the hashrate down by about 8%, miners are facing squeezed margins, which increases the likelihood of continued selling. This restriction keeps Bitcoin's short-term momentum contained, limiting any potential gains for the fourth quarter.

Miner

Source: Glassnode

However, this seems more like necessary selling rather than panic-induced actions. Bitcoin ETFs have recently experienced an influx of $457 million in a single day, indicating that institutional investors are still actively buying. Major market players are not yet withdrawing, suggesting that the current pullback resembles a healthy market adjustment rather than fear-driven capitulation.

This divergence in market behavior could significantly dictate Bitcoin's positioning as we head into 2026.

Conclusion

The interplay between regional mining restrictions and institutional buying activities is setting the stage for Bitcoin’s outlook as we approach 2026. Understanding these dynamics will be crucial for traders and investors navigating the cryptocurrency space in the coming months.