Sweden's New Tax Hike Deals Blow to Bitcoin Mining Industry

Sweden, once a stronghold for bitcoin miners in Europe, is ending tax incentives for data centres in July, potentially sounding the death knell for the industry in the region.

The surge in energy prices in Europe, driven by the war in Ukraine, has pushed bitcoin miners out. Even in the northernmost regions of Norway and Sweden, where the industry was still profitable due to cool climates and cheap hydroelectricity, miners have been affected.

Energy prices began to stabilise in 2023, but the upcoming tax increase may deter new investments in Sweden. According to the financial budget published in November 2022, the tax will jump from SEK 0.006 ($0.0006) to SEK 0.36 ($0.035) per kilowatt-hour (kWh) starting in July.

Jaran Mellerud, a senior analyst at mining services firm Luxor Technologies, estimates that based on last year’s average electricity prices, this tax hike could raise the total energy cost to $0.093/kWh. This increase could put machines like the MicroBT Whatsminer M30s, a moderately efficient and commonly used machine, at the break-even point.

Norway, another significant host for mining with 250-300 MW capacity, also raised its taxes from $0.0086 to $0.015 per kWh in January.

According to Denis Rusinovich, co-founder of mining consulting firm Cryptocurrency Mining Group, although Norway’s energy is cheaper overall and the tax hike is more modest, the industry will continue to develop there.

Mellerud says the new tax in Sweden may make mining “prohibitively expensive” and could ultimately destroy the country’s industry.

Miners are now exploring alternative solutions. Some are considering diversifying their operations elsewhere, while others are looking into self-mining instead of hosting others’ machines. Some are even exploring ways to reuse the heat produced in data centres to be taxed as heat producers.

However, the buyer market is drying up. Fewer than a handful of real buyers are left, making it difficult for miners to sell their equipment.

It’s unclear whether Sweden’s new taxes were targeting miners specifically or the entire data centre industry. The tax hike was proposed by the Swedish Ministry of Finance, which also lobbied for a ban on bitcoin mining in the European Union last year.

Sweden had enacted a 98% tax cut for data centres in 2017, hoping to attract businesses. However, according to the budget report, the industry has failed to create the jobs the country had hoped for, and the macroeconomic environment has changed.

Miners are disappointed by the sudden tax hike, with little notice or communication from the authorities. Firms like Hive Blockchain, which has significant operations in Sweden, are concerned about the abrupt regulatory changes.

Microsoft, which operates data centres in the region, has protested the suddenness of the decision, especially given that a government-commissioned report on the energy impact of data centres was not yet completed at the time of the tax hike decision.

Rusinovich says there has been no official communication with Bitcoin miners in the region except for an update on the tax authority’s website.

Enerhash, while still profitable in Sweden, is not planning additional investments in the country. The legal framework’s abrupt changes make it too risky for further investment, according to CEO Daniel Jogg.