Bitcoin miners in the Nordic region benefit from cheap energy
The wettest weather in at least 20 years has boosted output from hydropower plants, leaving Sweden and Norway with some of the lowest electricity prices in the world. The resulting glut of the most important raw material for making virtual coins coincided with a year in which the price of Bitcoin tripled.
Currencies are made in giant computer farms that process complex algorithms in halls as large as airport hangers. This makes electricity one of the main inputs, with operations sometimes consuming as much energy as that used by 70,000 households. Current market dynamics offer large miners alternatives to places where Bitcoin is typically created, such as China, Kazakhstan, and Canada.
Their luck follows several years of low margins due to higher electricity costs and lower prices for most virtual currencies. Many of the miners drawn to the area at the last rally in 2017 have left.
Those who stayed through the tough times, like us, are pretty happy now, said Philip Salter, operations manager at Hong Kong-based Genesis Mining Ltd., which operates a data center in Boden, Sweden. . There were times when we weren’t making any profit, but over the last year our profitability has more than tripled.
Unusually humid weather and mild temperatures have propelled hydroelectric reservoirs in the Nordic region to the highest level in more than 20 years, leaving the region inundated with generating capacity. The result is electricity prices close to zero for long periods of time. Average prices this year are about a third of those in Germany, Europe’s largest electricity market.
Norway had the lowest electricity prices for industrial users last year among the 30 member countries of the International Energy Agency. It also had the lowest prices for non-households in the European Union during the first half of this year, just ahead of Iceland, another cryptocurrency hotspot.
These prices are some of the lowest you can find in the world if you don’t factor in fees and taxes, said Tor Reier Lilleholt, head of analysis at Norwegian consultant Wattsight AS. “What we have seen this summer is that the low levels have been recorded for so long.”
The main environmental benefit of the mining base in the Nordic region is that electricity is almost carbon-free, consisting mainly of hydro, nuclear and wind power. This is becoming increasingly important for the many institutional investors drawn to cryptocurrencies and one of the main factors behind the latest price spike. Having coins from the Nordic region helps reduce Bitcoin’s political risk profile.
“There is a very important strategic shift from mining in China to mining in western countries like Sweden as Bitcoin investors become more public and want more stability and critical security,” said Salter. at Genesis. This is one of the biggest Bitcoin mining developments to watch.
It is difficult to compare electricity prices around the world as they vary between industries and regions due to taxes, fees and subsidies. An attempt by the World Bank, which measures bills from an imaginary warehouse in each nation’s capital, places Sweden and Norway far below China but above other centers of cryptocurrency manufacturing, like Kazakhstan and Mongolia.
The cost of energy is about to become even more important for miners. The hash rate, the amount of computation required to produce each part, is steadily increasing. And in May, miners’ rewards were cut by a so-called halving, a reduction in the amount of tokens they receive in order to maintain scarcity.
Many miners who left the area after the boom and recession of 2017-18 may return. The announcement in November of a $35 million investment by Dutch blockchain company Bitfury Holding BV to expand its Norwegian site could mark the start of a new trend.
We have seen a noticeable increase in investor appetite for Bitcoin mining opportunities in Norway, said Tyler Page, business developer at Bitfury. This year’s energy prices were particularly low as Bitcoin prices rose.
By Jesper Starn
