- The crisis in Ukraine has increased energy costs in Europe
- The tax increase would increase the total cost of energy to $0.093/kWh
- The Swedish Ministry of Finance suggested a 98% tax reduction for data centers in 2017
Early in March, the U.S. Treasury declared intentions to levy a 30% tax on domestic cryptocurrency mining businesses. In order to encourage these cryptocurrency miners to use as little energy as possible, the U.S. Treasury also hinted that going future, all mining operations would have to submit a thorough report of their electrical usage. This is undoubtedly bad news for Bitcoin (BTC -2.75%) miners worldwide, as should be predicted.
The charge for Bitcoin mining businesses won’t take effect right away. It would be implemented gradually over a three-year period, adding 10% per year. Crypto miners would theoretically have the opportunity to adjust to the new reality in this way. They would have two fundamental options: relocate to a new country that accepts cryptocurrency, or completely switch to sustainable energy sources that use a little amount of electricity.
Sweden Getting Rid Of Tax Breaks
Sweden, the last major hub for bitcoin mining in Europe, is getting rid of its tax breaks for data centers in July, which could spell the end for the sector there.
The crisis in Ukraine has increased energy costs in Europe over the past year, which has driven out bitcoin miners. Since they provide an excellent environment for data centers cool and home to affordable hydroelectricity the northernmost regions of Norway and Sweden were some of the last places where the business was still viable and running, despite the fact that the population had decreased.
But even these isolated regions of Europe were not immune to the effects of the energy crisis, which increased prices and forced several miners to curtail, at least partially, their activities in 2022.
According to Jaran Mellerud, senior analyst at mining services company Luxor Technologies, the tax increase would increase the total cost of energy to $0.093/kWh based on the average price of electricity last year. Given the state of the market, he added, a MicroBT Whatsminer M30s, a reasonably effective and widely used device, would reach break-even point.
A Canadian miner called Hive Blockchain (HIVE), which will have 25% of its energy capacity in Sweden by the end of 2022, declined to comment on this report.
Looking For Solutions
Bitcoin miners are seeking solutions because Sweden’s tax increase makes mining in the area “prohibitively expensive in Sweden and could ultimately destroy the industry,” according to Mellerud.
Since the new tax will significantly lower their profitability, many miners are attempting to diversify, according to Daniel Jogg, CEO of Enerhash, which has a location in Sweden. A major liquidity crunch is created by the tax’s requirement that businesses pay a few months in advance, which comes at a challenging time for the sector, according to him.
According to Rusinovich, some miners might try to avoid the tax increase by switching to self-mining rather than hosting other people’s computers.
According to Mellerud, some people are looking for ways to avoid the tax by reusing the heat generated in the data centers so that they are charged as heat producers.
Unclarity Regarding New Taxes
It’s unclear whether Sweden’s increased charges were targeted at data center operators as a whole or at miners specifically. Mellerud said that the tax increase was suggested by the Swedish Ministry of Finance, which also pushed for a ban on bitcoin mining in the European Union last year.
In an effort to draw in companies, Sweden implemented a 98% tax reduction for data centers in 2017. The industry hasn’t produced the number of employment the nation hoped it would four years later, and the macroeconomic situation has altered, according to the budget report.
According to the budget, the energy crisis has raised home electricity costs, and the existing tax cuts may actually be sapping energy from other manufacturing sectors that create more jobs.
The tax increase was implemented with what appeared to be little notice or communication, which has frustrated the miners. Companies like Hive promote Sweden as a “stable” location where they may operate without fear of sudden, unilateral changes to the legal framework.