Sweden, once considered a stronghold for bitcoin miners in Europe, is facing an uncertain future for its cryptocurrency mining industry. The country is set to abolish tax incentives for data centers in July, which will increase the tax rate from SEK 0.006 ($0.0006) to SEK 0.36 ($0.035) per kilowatt hour (kWh) of energy consumed by miners. This represents a 6,000% increase in taxes that could make mining “prohibitively expensive” in Sweden, according to Jaran Mellerud, senior analyst at mining services firm Luxor Technologies.
The tax hike comes at a time when many miners have already been forced to shut down or relocate due to the energy crisis in Europe, which has been exacerbated by the conflict in Ukraine. The northern regions of Norway and Sweden were popular among miners due to their favorable 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.
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 hike2. 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. Sweden’s bitcoin mining industry accounted for about 1% of the global hash rate in 2021, and its demise could affect the network security and decentralization of Bitcoin. Moreover, Sweden’s tax policy could set a precedent for other countries to follow suit, especially as environmental concerns over bitcoin mining grow.
Sweden’s bitcoin mining industry faces a bleak outlook as it braces for a massive tax hike in July. The country’s decision could have far-reaching consequences for the future of crypto mining and innovation in Europe and beyond.