While tax incentives for data centres are slated to be eliminated in July, Sweden, formerly thought of as a stronghold for bitcoin miners in Europe, is dealing with an unclear future for its cryptocurrency mining business. This occurs at a time when numerous miners have already been forced to cease operations due to the energy crisis in Europe, which has been made worse by the conflict in Ukraine.
The northern regions of Norway and Sweden were popular among miners due to their favorable environment for data centers – cool climate and cheap hydroelectricity. However, even these remote areas have not been spared from the effects of the energy crisis, which has led to increased energy prices and reduced profitability for miners.
The upcoming abolition of tax incentives in Sweden is expected to further hamper the mining industry in the region. The tax will increase from SEK 0.006 ($0.0006) to SEK 0.36 ($0.035) per kilowatt hour (kWh) starting July of this year, making mining “prohibitively expensive” in Sweden, according to Jaran Mellerud, senior analyst at mining services firm Luxor Technologies. This could potentially spell the end for the industry in Sweden, as it significantly erodes the profitability of mining operations.
Miners are scrambling to find solutions, with some considering diversifying to other locations or switching to self-mining instead of hosting others’ machines. There are also discussions about reusing the heat produced in data centers to be taxed as heat producers, in an attempt to circumvent the impending tax hike. However, these efforts may not be enough to save the struggling industry, as the market of potential buyers has dwindled and the tax payment requirements create cash constraints for companies.
The tax hike has been met with disappointment and frustration from miners, who were caught off guard by the sudden announcement and lack of official communication. Microsoft, which also operates data centers in the region, has raised concerns about the abruptness of the decision, particularly as a government-commissioned report on the energy impact of data centers was not yet completed at the time of the tax hike decision.
It is unclear whether the tax hike was specifically targeted at Bitcoin miners or the entire data center industry. Some believe that it could be viewed as an attack on bitcoin mining, as the Swedish Ministry of Finance had also pushed for a ban on Bitcoin mining in the European Union last year. However, others argue that the tax cuts for data centers enacted in 2017 may have taken away energy from other job-creating industries in the manufacturing sector, and the macroeconomic environment has changed since then.
The repercussions of this tax hike could extend beyond Sweden and have implications for the broader metaverse and crypto sector. With Norway also increasing its taxes for mining in January, miners may need to look for other locations with more favorable conditions. This could potentially disrupt the mining industry in Europe and impact the global supply of cryptocurrencies, leading to changes in the dynamics of the crypto market.