Sweden hammers the final nail into its Bitcoin mining industry with a tax hike

Sweden, the last remaining stronghold of bitcoin miners in Europe, is scrapping tax incentives for data centers in July – potentially putting the final nail in the coffin for the industry in the region.

Energy prices in Europe have risen over the past year, largely due to the war in Ukraine, which has driven out bitcoin miners. The northernmost regions of Norway and Sweden were some of the last areas where the industry was still profitable and operating – although the numbers had thinned – as they offer an ideal environment for data centers; cool and home to cheap hydropower.

But even these remote parts of Europe did not remain unaffected by the energy crisis, which caused prices to rise and some miners to shut down operations, at least partially, in 2022.

Energy prices began to normalize in 2023, but the upcoming tax is likely to halt any new investment in Sweden, which is currently home to around 150 megawatts (MW) of mining. The tax will increase from SEK 0.006 ($0.0006) to SEK 0.36 ($0.035) per kilowatt hour (kWh) from July this year, according to the fiscal budget published in November 2022.

Based on the average electricity prices last year, the tax increase could bring the total energy cost to $0.093/kWh, said Jaran Mellerud, senior analyst at mining services firm Luxor Technologies. A MicroBT Whatsminer M30s, a moderately efficient and frequently used machine, would be at break-even given current market conditions, he said.

Hive Blockchain (HIVE), a Canada-based miner with 25% of its energy capacity in Sweden by the end of 2022, declined to comment for this story. CoinDesk could not find a case where Hive explicitly disclosed the tax increase in any of its filings. The firm has discussed its disagreement with Swedish tax authorities over $32.4 million in value added tax that it believes it should collect.

Norway, which hosts 250-300 MW of mining, also increased taxes from $0.0086 to $0.015 per kWh in January, Mellerud said.

Not all hope is lost for Norway, since energy is generally cheaper and the tax increase is more modest, said Mellerud. The industry will continue to develop there, said Denis Rusinovich, co-founder of mining consultancy Cryptocurrency Mining Group.

Sweden’s tax increase makes mining in the region “prohibitively expensive in Sweden and could eventually destroy the industry,” Mellerud said, so bitcoin miners are looking for solutions.

Many miners want to diversify elsewhere, as the new tax will drastically reduce their profitability, said Enerhash CEO Daniel Jogg, who runs a site in Sweden. The tax also requires companies to pay in advance for a few months, creating some serious cash constraints at a difficult time for the industry, he said.

Some miners may try to get around the tax increase by switching to self-mining instead of hosting other people’s machines, Rusinovich said.

Others are looking at ways to circumvent the tax by reusing the heat produced in the data centers so that they are taxed as heat producers, Mellerud said.

Those who are packing up also face an uphill battle, Rusinovich said: “The market for potential buyers has completely dried up and there are only less than a handful of genuine buyers left.”

It is unclear whether Sweden’s new taxes were aimed at miners or the entire data center industry. The tax increase was proposed by the Swedish Ministry of Finance, which also pushed for a ban on bitcoin mining in the EU last year, Mellerud pointed out.

“This can be seen as an attack on bitcoin mining,” he said.

In 2017, Sweden adopted a 98% tax cut for data centers to attract businesses. Four years later, the industry has not created the jobs the country hoped for, and the macroeconomic environment has changed, the budget report says.

The energy crisis has increased electricity prices for households, and the tax cuts that are now in place can actually take energy from other, more job-creating industries in industry, the budget says.

Miners are disappointed with how the tax increase was rolled out, with what appeared to be little notice or communication. Companies such as Hive promote Sweden as a “stable” jurisdiction, where they do not worry about sudden unilateral changes in the regulatory regime.

Microsoft (MSFT), which also operates data centers in the region, has objected to the move being abrupt, especially given that the government had commissioned a report on the energy impact of data centers that had not been completed at the time of the tax hike decision, according to the budget.

That, plus the fact that the tax will be implemented in the middle of the calendar year, making it difficult to plan ahead, has rubbed miners the wrong way. Companies can request a refund for all taxes imposed before the beginning of July, a spokesperson for the Swedish Tax Agency said.

Enerhash will keep its operations in Sweden because they are still profitable, especially given its geographic diversification, but they will not invest in additions. Why would you invest there when the legal framework can change so suddenly, asked Jogg.