Here’s why the unrest in Kazakhstan is wreaking havoc on the crypto and commodities markets

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Bitcoin and the flag of Kazakhstan

Jakub Porzycki / NurPhoto via Getty Images

Kazakhstan has shut down its nationwide internet after political unrest over rising gas prices. Among the sectors affected by the blackout was bitcoin mining, which has taken off in the Central Asian country. Other commodities such as uranium and petroleum were also affected, with both experiencing price spikes within days of the uprising. Sign up for our daily newsletter here, 10 things before the opening bell

It has been days since thousands of demonstrators took to the streets of Kazakhstan to express their outrage at the rising prices of liquefied petroleum gas, which means that it has also been days since the internet was shut down across the country, compromising the security of many businesses and residents.

Bitcoin mining, a booming industry in the Central Asian country, has been one of the hardest hit industries.

Kazakhstan became the world’s second-largest bitcoin mining center last year after China cracked down on crypto activity, according to data from the Cambridge Center for Alternative Finance.

Hours after the internet shutdown on Tuesday night, bitcoin’s hash rate dropped 12%, Larry Cermak, vice president of research at The Block, said in a tweet. The hash rate is a key measure of the computational power required to support the network and create new bitcoin.

“The internet blackout likely prevented miners from accessing the bitcoin network, causing the global network to drop immediately and abruptly,” John Warren, CEO of GEM Mining, a bitcoin mining company, told Insider.

But Warren isn’t too worried. He said that while it is difficult to predict how events in Kazakhstan will unfold, Bitcoin’s network is resilient, having been able to recover smoothly from recent outages.

“I think such disruption won’t have a big impact on this,” he told Insider.

Internet connectivity in Kazakhstan continued to stagnate for the 60th hour on Friday evening, although it was briefly restored in parts of the country for a few hours to broadcast its president’s televised speech, according to Isik Mater. She is the Research Director at NetBlocks, a surveillance organization that monitors cybersecurity and the Internet globally.

Kazakhstan’s appeal to bitcoin miners has a lot to do with the country’s affordable energy supply through an abundance of coal-fired electricity, according to Mohamed Elkasstawi, co-founder of Tribal Credit, a corporate payment platform. focused on cryptography.

“This is a significant advantage for miners who compete in a low-margin industry where their highest cost is energy,” Elkasstawi told Insider.

Bitcoin fell to its lowest level in three months on Friday. While the drop in the hash rate is not directly related to the price of the asset, the internet shutdown has affected bitcoin’s ability to create more for itself through bitcoin mining. Marcus Sotiriou, analyst at digital asset broker GlobalBlock, called this slide a “short-term phantom.”

Going forward, it remains to be seen what bitcoin miners will do if the situation in Kazakhstan does not change. For Alan Konevsky, General Counsel of PrimeBlock Ventures, an investment firm focused on digital assets, bitcoin miners in the United States will be indirectly affected in a positive way.

“First, less hashing power in the network means more room for miners in North America to increase their share of the network,” Konevsky told Insider. “Second, mining companies are moving to countries like Kazakhstan and Kosovo because the cost of electricity is much cheaper than in North America. negating the loss of hash power. “

Outside of digital assets, some commodities have risen amid the turmoil. Prices for uranium and crude oil, in particular, have jumped over fears of lower production.

Kazakhstan is the world’s largest supplier of uranium, the most widely used fuel by nuclear power plants accounting for around 40% of global production, Insider reported. Uranium prices jumped about 8% on Wednesday, according to commodity pricing agency S&P Platts.

Brent futures also rose around 6% this week after production at Tengiz, Kazakhstan’s largest oil field, was cut on Thursday due to disruption to train lines, Reuters reported . The country is a major oil producer with an output of 1.6 million barrels per day, according to Reuters.

President Kassym-Jomart Tokayev said on Friday that order was “mostly restored” after one of the most intense political upheavals the country has seen since gaining independence more than 30 years ago.

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