Cailianshe: Due to the sharp drop in electricity prices, the profits of Bitcoin mining in Northern Europe have more than doubled this year

Source: Cailianshe

Author: Zhou Ling

Cailian Press (Shanghai, editor Zhou Ling) reported that benefiting from the wettest weather in more than 20 years, hydroelectric power plants in the Nordic region have increased their power generation this year, making electricity prices in Sweden and Norway the lowest in the world. Due to the plummeting electricity prices, the profits of Bitcoin mining activities in the Nordic region have tripled this year.

In 2020, the price of Bitcoin nearly tripled. At the same time, due to the unique weather, the most important raw material for Bitcoin manufacturing in the Nordic region, electricity, continued to be in oversupply this year.

Bitcoins are typically mined by giant computer farms in halls the size of airport hangars, using complex algorithms. This makes electricity one of the key costs, with the power consumed by these giant computers sometimes equivalent to that of 70,000 homes.

The current changes in the electricity market have provided large-scale Bitcoin miners with alternative locations for Bitcoin mining. In the past, Bitcoin mining activities were mainly concentrated in China, Kazakhstan and Canada.

As mining becomes less profitable in recent years, rising electricity costs and falling prices for most cryptocurrencies have made it harder for miners to mine. Many miners who were attracted to regions such as China, Kazakhstan and Canada during Bitcoin’s 2017 rally have left.

“Companies that have survived the tough times, like us, are happy now,” said Philip Salter, head of operations at Hong Kong-based Genesis Mining Ltd., which runs a data center in Boden, Sweden. “There were times when we were not profitable at all, but our profitability has more than tripled in the past year.”

Norway's electricity prices plummet

Unusually wet weather has pushed reservoirs in northern Europe to their highest levels in more than 20 years, leading to a surge in electricity generation - and power prices have been close to zero for a long time. The region's average electricity price this year is only about one-third of that in Germany, Europe's largest power market.

Norway has the lowest industrial electricity prices this year among the 30 IEA member countries. Its prices for non-domestic users were also the lowest in the European Union in the first half of the year, lower than those in Iceland, another cryptocurrency mining hotspot.

“If you don’t take into account fees and taxes, the prices here are the lowest you can find in the world,” said Tor Reier Lilleholt, head of analysis at Norwegian consultancy Wattsight AS.

Environmentally friendly, low political risk

Besides that, the main environmental benefit of locating mining in the Nordic region is that the electricity here is almost carbon-free, mainly composed of hydropower, nuclear power and wind power. This is becoming increasingly important for many institutional investors attracted to cryptocurrencies. Institutional buying is one of the main factors behind the recent price surge.

Moreover, the outflow of Bitcoin from the Nordic region helps reduce its political risks.

"As Bitcoin investors become more public and want more stability and critical security, China's mining operations are moving to Western countries such as Sweden, which is a very important strategic shift," Salter said. "This is one of the biggest developments worth paying attention to in the Bitcoin mining space."

Bitcoin computing power, China still has the highest global

The Bitcoin mining map released by the Cambridge Center for Alternative Finance (CCAF) in May this year shows the current distribution of Bitcoin mining hash rates (a unit of measurement for the processing power of the Bitcoin network, also known as computing power) around the world. The map shows that the vast majority of hash rates are currently located in China.

Taking the latest data from April 2020 as an example, China accounted for 65.08%, almost nine times that of the United States. The United States ranked second with 7.24%, followed by Russia with 6.90%, Kazakhstan with 6.17%, Malaysia with 4.33% and Iran with 3.82%.

In China, the main hash rates are distributed in Sichuan, Xinjiang, Inner Mongolia, Yunnan, Gansu and Beijing.

It is worth noting that this winter, there is a power shortage in some areas of China, which may make the power supply even tighter and may have a certain impact on Bitcoin mining.