Thanks to a decline in energy costs, the Nordic zone has once again become a lucrative place to mine crypto-currencies.
The wettest weather in at least 20 years has improved hydro-electric power plant output, leaving Sweden and Norway with some of the lowest energy prices in the world. The resulting glut in the most significant raw material for the production of virtual coins coincided with a year when the Bitcoin price nearly quadrupled.
In giant computing farms, currencies are made that process complicated algorithms in halls as wide as airport hangars. That makes electricity one of the major contributors, with operations consuming as much power as 65,000 households often consume. The current dynamics of the market offer large miners alternatives to places where Bitcoin is generally produced, such as China, Kazakhstan and Canada.
“Bitcoin could surge to $100,000 by the end of 2021”
Anthony Pompliano, crypto investor
Their luck follows many years of weak margins for most virtual currencies from higher energy rates and falling rates. Most of the miners who were drawn to the area quit after the last rally in 2017.
“The ones that stayed through the difficult period, like us, are quite happy now,” said Philip Salter, head of operations at Hong Kong-based Genesis Mining Ltd., which operates a data center in Boden, Sweden. “There were times we were not making any profit at all, but during the last year our profitability has more than tripled.”
Unusually wet weather and mild temperatures lifted water reservoirs to the highest level in more than 20 years across the Nordic region, leaving the country saturated with generation power. As a result, electricity rates for long stretches are close to zero. This year’s average rates are approximately a third of those in Germany, Europe’s main electricity market.
Of the 30 member nations of the International Energy Organization, Norway had the lowest power rates for industrial consumers last year. In the first half of this year, it has had the lowest rates for non-households in the European Union, barely beating Iceland, another crypto-currency hot-spot.
“These prices are some of the lowest you can find in the world if you disregard fees and taxes,” said Tor Reier Lilleholt, head of analysis at Norwegian consultant Wattsight AS. “What we saw this summer was that the low levels registered over such a long time.”
The biggest environmental advantage of the Nordic region’s mining base is that power is nearly carbon-free, composed mostly of hydro, nuclear and wind energy. For the many institutional investors drawn to crypto-currencies, this is becoming incredibly influential and one of the key drivers behind the recent price spike. The use of coins coming from the Nordic zone tends to reduce Bitcoin’s political risk profile.
“There is a very important strategic shift away from mining in China to mining in western countries like Sweden as Bitcoin investors become more public and want more stability and critical safety,” said Salter at Genesis. “It is one of the biggest developments in Bitcoin mining to look out for.”
It is difficult to compare energy rates around the world because they differ due to tariffs, fees and subsidies between sectors and regions. One attempt by the World Bank, which tests the bills of a hypothetical factory in each nation’s capital, places Sweden and Norway just below China, but above other crypto-currency making hubs, such as Kazakhstan and Mongolia.
For miners, the cost of electricity is poised to become ever more critical. There is a steady rise in the hash-rate, the amount of computation taken to generate each coin. And in May, the benefits of miners were slashed by a so-called halving, a decline in the amount of tokens they earn as a method of maintaining scarcity.
“This year’s energy prices were particularly low as Bitcoin prices have increased.”
-Tyler Page, a business developer at Bitfury.
Many of the miners who left the area after the boom and bust of 2017-18 may return. The November announcement by the Dutch blockchain firm Bitfury Holding BV of a $35 million investment to extend its Norwegian site could represent the beginning of a new trend.