The Nordic region once again has become a lucrative place to mine cryptocurrencies, thanks to a plunge in electricity prices.
The wettest weather in at least 20 years boosted production from hydro-electric plants, leaving Sweden and Norway with some of the lowest power prices in the world.
The resulting glut in the most important raw material for making the virtual coins coincided with a year when the price of bitcoin tripled.
The currencies are made in giant computer farms that process complex algorithms in halls as big as airport hangars. That makes electricity one of the key inputs, with operations sometimes consuming as much power as that used by 70,000 households.
The current market dynamics give big miners alternatives to places where bitcoin is usually created such as China, Kazakhstan and Canada.
Their luck follows several years of poor margins from higher electricity costs and lower prices for most virtual currencies. Many of the miners that were attracted to the region during the last rally in 2017 have left.
“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 along with mild temperatures boosted hydro reservoirs across Nordic region to the highest level in more than 20 years, leaving the area awash in generation capacity.
The result is power prices close to zero for extended periods. Average prices this year are about one-third of those in Germany, Europe’s biggest power market.
Norway had the lowest electricity prices for industrial users last year among the 30 member nations in the International Energy Agency.
It also had the lowest prices for non-households in the EU during the first half of this year, narrowly beating Iceland, another cryptocurrency hotspot.
“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 main environmental benefit from basing the mining in the Nordic region is that the electricity is almost carbon-free, consisting mostly of hydro, nuclear and wind power.
That is becoming increasingly important for the many institutional investors attracted to cryptocurrencies and one of the main factors behind the latest price surge.
Having coin flowing from the Nordic region helps reduce the political risk profile of bitcoin.
“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,” Salter said. “It is one of the biggest developments in bitcoin mining to look out for.”
Comparing electricity prices around the world is difficult, since they vary between industries and regions due to taxes, fees and subsidies.
One attempt by the World Bank, which measures the bills of an imaginary warehouse in the capital of each nation, puts Sweden and Norway well below China, but above other centers for making cryptocurrencies, such as Kazakhstan and Mongolia.
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