Tiny Bhutan is banking on Bitcoin to boost its economy

The small Himalayan country of Bhutan, which in 1999 became one of the very last in the world to allow internet access, is now making what may be Asia’s boldest foray into the risky world of cryptocurrency.

For decades, Bhutan’s development was limited by physical geography – nearly 99 percent of its territory is covered by mountains and hills. But since the 1970s, the isolated kingdom has used its geography to its advantage by building a series of hydroelectric plants along its glacial rivers, giving it enough electricity for its own use and for export.

Now Bhutan plans to use its cheap, abundant power to mine Bitcoin – an extremely energy-intensive process that requires special computers and technology to solve complicated mathematical problems – and invest the profits in the country’s development.

Bhutan’s sovereign wealth fund, Druk Holding and Investments (DHI), last week announced a $500 million partnership with a Singapore technology company, Bitdeer, to mine Bitcoin in the country for sale abroad.

“Partnering with Bitdeer to launch a carbon-free digital asset mining data center represents an investment in a more connected and sustainable domestic economy, helping to ensure we are at the forefront of global innovation,” said DHI CEO Ujjwal Deep Dahal.

Bhutan is not known as a tech-savvy nation. While internet coverage is now at 85 percent of the country’s 795,000 population, the tech industry is nascent, according to Tshering Cigay Dorji, the former CEO of Thimphu Tech Park, the country’s only major IT hub, which hosts about 600 workers and a handful of companies serving international customers.

More than half of Bhutan’s population still work in agriculture, and the country is one of nine Asian countries categorized by the United Nations as a least developed country.

“The problem is that although Bhutan has this very romantic Shangri-la type image in the west, the reality is that we are still one of the least developed countries and economic self-sufficiency has always been our ultimate goal,” said Tenzing Lamsang, the editor of The Bhutanesethe country’s largest private newspaper.

Under Bhutan’s Wangchuk dynasty, the country’s focus has been on increasing gross domestic happiness rather than economic gain. But the royal family’s decision to cede power to elected officials in recent years has led to better political decisions regarding the economy.

The abundant power from hydroelectric plants was used to power new domestic industries, including forestry and mining, as well as being exported to neighboring India.

The poverty rate fell from 36 percent in 2007 to 9 percent in 2019, according to the World Bank.

“We don’t have much land for large-scale industry, and we can’t compete with China and India in terms of services. But what we have is extensive hydropower – the cheapest in the world, Lamsang said.

“Bitcoin is part of a fourth economic industrial revolution in Bhutan. Cryptocurrency is low-hanging fruit for us, and we can use the revenue to get into AI, robotics and machine learning.”

News of the state’s Bitcoin venture has been met with a mixture of excitement and suspicion in Bhutan, given the unfamiliarity of the concept of cryptocurrency and the fact that $500 million is a huge investment for an economy the size of Bhutan – the International Monetary Fund puts GDP at 2.6 billion dollars, which ranks the country 178th in the world.

Last year there was also public anger after it emerged that DHI had secretly borrowed millions of dollars from cryptocurrency lenders BlockFi and Celsius, the news only coming after both companies went bankrupt.

The press statement from DHI and Bitdeer said that the money will be used to build data centers for mining operations and to acquire the necessary technology, as well as for investments in renewable energy sources.

The national approached DHI, Bitdeer and the Bhutanese Ministry of Finance for comment, but did not receive a response

Cryptocurrency experts say the deal will be lucrative for Bhutan and will lead to further opportunities in financial services.

“I see it as a smart strategy. It is better for Bhutan to sell Bitcoin, a finished product, rather than energy as a raw material, because it will give the country a much higher return. Exporting raw power to neighboring countries can involve significant infrastructure costs,” said Nischal Shetty, co-founder and CEO of WazirX, one of India’s largest cryptocurrency trading platforms.

“Bringing in Bitcoin mining will also allow Bhutan to tap into new markets globally and allow the country to start developing more and more financial technology.”

However, the biggest concern comes from fluctuations in the price and demand of cryptocurrency. In 2018, the price of cryptocurrencies collapsed by over 80 percent between January and December.

Bitcoin hit a record high of $65,000 in 2021, but plunged to $6,200 after the war in Ukraine started last February. It has recovered to about $27,000 since then.

JPMorgan, the American financial company, estimates that it costs $13,000 to mine one Bitcoin, a process that can take anywhere from an hour to several months, depending on user experience and available software.

Bitcoin’s proponents say it is the currency of the future. It offers user anonymity and transparency and avoids third-party involvement, for example from a government, while cross-border transfers are cheaper.

However, the recording is slow. According to a 2021 study by the World Economic Forum, only 6 percent of US citizens owned cryptocurrency, and the price was even lower in Japan, Germany, and Russia.

At least 42 countries have outright bans or de facto limits in place, including China, Saudi Arabia and Indonesia. India has proposed an outright ban.

There are also concerns over the long-term viability of cryptocurrency. Already now, the energy used to mine Bitcoin annually is greater than the amount Norway uses in one year.

“At the end of the day, volatility will always exist with any currency,” Shetty said. “And Bitcoin and other cryptocurrencies are far more volatile – it’s hard to say how they will behave in the future.”

Updated: May 12, 2023, 6:01 p.m