If the purpose is to bypass currency controls, it is to get money out of China, not back in. You don't want to sell Bitcoins for yuan (though it is certainly happening.)

Chinese miners are spending yuan to buy mining hardware. This answers the question of why run an "unprofitable" mining operation. Rather what you are doing is converting yuan to bitcoin. The mining operation is not for profit but rather a currency conversion. How much of the mined bitcoin is being converted to dollars? If it is being sold right away, that is pushing the price down not up. If they are just sitting on it, then a cause to sell it all could push the price down hard.

This same thing applies to money laundering in general. At some point, if not already, authorities would investigate who is buying massive quantities of hardware that is viable for mining. Of course there have been shortages, which PC gamers hate, so perhaps third party sellers like eBay hold more answers than nVidia.

If I was making big bets on the price Bitcoin I would have my researchers trying to answer these questions above all else. Are there miners sitting on huge quantities of bitcoins who will at some point in the near future are likely to become motivated sellers? Secondly, I would be trying to figure out if any of the major exchanges are involved in fraud like Mt Gox was.

Amusingly all of the bitcoin speculators equate the success or failure of bitcoin with the increase of its price. That is completely missing the point of cryptocurrency.

Bitcoin's adoption continues to increase. Make no mistake about this. It is far from having "petered out": http://avc.com/2014/10/bitcoin-adoption-metrics/ More and more people in China, Venezuela, etc, are using it to bypass currency controls. The problem was the media was hyping Bitcoin and making it sound like it would become instantaneously popular overnight. Instead, it is a process that will take some time. That is all.

If, by "petered out", you were referring to the current downtrend in price, well IMHO the explanation is much simpler: Bitcoin users are just selling coins to pay their income taxes, before the IRS deadline of October 15, 2014. My reasoning is as follow:

(1) a lot of Bitcoin users are American, so they fall under IRS U.S. tax laws

(2) most users realized incredible gains during the 2013 tax year: Bitcoin went up 5700% from $13 to $750 between January 1 and December 31

(3) 2013 was the first year for which the IRS published official Bitcoin guidelines (http://www.irs.gov/pub/irs-drop/n-14-21.pdf), thereby enticing many users to pay taxes (and no, unlike what the media like to say, a lot of us are not anti-government anti-tax punks - we like to stay legal, pay taxes, and legitimize Bitcoin)

(4) because a lot of Bitcoin users became "accidentally" Bitcoin-rich (with little or just a normal amount of other USD-based assets), they have no choice but to sell coins to pay taxes on their Bitcoin gains

Let me tell you I experienced this first-hand: I filed for a tax extension to pay on October 15 instead of April 15. I knew my taxes would probably be around $100,000, and when my accountant was done (a few weeks ago), it was indeed about $100,000 in taxes. I had always been planning to sell coins to cover this amount, but seeing how much BTC lost value in the last weeks/months, I decided to scramble and use money from elsewhere to pay for the taxes. But I am sure that many other Bitcoin users don't have a financial cushion to be able to pay a bunch of taxes at the last minute. That's why I theorize the current downtrend is caused by people selling coins to pay for taxes. In fact, if my theory is right, there should have been a dip around the time of the first deadline for those who did not apply for an extension (and had to sell coins to pay taxes by April 15), and there WAS one exactly at this time! In fact I predicted this dip back in April: https://plus.sandbox.google.com/100577178258662783679/posts/...

I'm probably the one that's wrong here but I thought because it was considered property and not currency you only had to pay taxes when it was used. In fact your IRS linked PDF seems to agree with me.

You are, indeed, wrong: taxes are owed the moment coins are mined, even if they remain unspent or unused, see question Q-8 in http://www.irs.gov/pub/irs-drop/n-14-21.pdf

It is considered property, however, when mined it is treated as property received as compensation for services rendered (i.e., verifying transactions in the block). Consequently, it is treated as income at its fair market value when received.