Sweden Delivers Harsh Destroyer to Bitcoin Miners with Hefty Tax Hike

In its latest update, Sweden confirmed raising the taxes due per every kilowatt hour of energy consumed in mining activities by 6000%.

Sweden Swaps Tax Incentive with Hefty Tax Rate

The directive set to become effective in July reveals the only remaining bitcoin mining country in Europe will extinguish tax incentives extended to the data centers. Sweden’s decision mirrors the last nail, potentially burrying bitcoin mining in the only remaining stronghold in Europe. 

The directive issued by Sweden is unsurprising, given the accelerated increase in energy prices across Europe. The spike traces partly to the Ukraine invasion by Putin-led Russia. Beyond geopolitical issues, the Russian attacks on Ukraine are chasing bitcoin miners out of Europe. 

Sweden Tax Rate Spike Threatens to Erode Profitability

The miners affected by the Sweden directive would majorly comprise the large number within the northern region considered profitable owing to cheap hydroelectricity. Similar to Norway, Sweden’s northernmost part is attracting a thin mining crowd. Previously they constituted an ideal environment to host data centers owing to cheap hydroelectricity. 

The remote regions are confronting the same wrath of the energy crisis witnessed across Europe. The crisis arises from increased energy prices forcing bitcoin miners in 2022 to switch off operations. 

The introduction of a hefty tax in July is set to disrupt the mining industry at a time when energy prices seem to normalize. Heavy taxation will ultimately scare away new mining investment targeting Sweden, home to 150MW mining activity. 

Mining Firms Would Struggle to Break Even Under The New Tax Rate

The financial budget released in November 2022 proposes raising the tax on bitcoin mining from SEK 0.006 to SEK 0.06 kWh. The lead analyst at Luxor Technologies regretted that going by the average prices, the energy prices could increase to $0.093. He added that mining firms using the common MicroBT Whatsminer M30s would only break even given its moderate efficiency.

Among the firms bearing the huge casualty is the Hive Blockchain (HIVE) – a Canadian-headquartered bitcoin miner. The firm is yet to comment on the proposed tax hike despite approximately 25% of the overall mining capacity hosted in Sweden. Also, Hive failed to reveal the tax increment in the recent filings explicitly. Such is notable despite the firm disclosing it would recover $32.4 million VAT, which it has been disputing with the Swedish Tax Authorities over $32.4 million. 

Mellerund indicated that Sweden replicates the January move by Norway that hiked the tax from $0.0086 to $0.015 kWh. Norway is home to an estimated mining capacity of 250-300MW. However, the analyst expressed optimism about the survival of bitcoin mining in Norway, given its modest tax increase and cheap energy. 

Mellerund sentiments received backing from Denis Rusinovich, who, through the statement conveyed by the consulting firm he co-founded, Cryptocurrency Mining Group, indicated that the sector is bound to develop further.

Way Forward for Crypto Mining Industry

Sweden’s proposed tax hike would translate to a prohibitive move expensive to tolerate for mining companies. Ultimately, it would hurt the mining industry. Mellerund admits that the move would compel bitcoin miners to seek alternative solutions as it is bound to destroy the industry. 

Bitcoin miners decried the move, with several executives considering relocating to friendly destinations. Enerhash chief executive Daniel Jogg warned that the new tax imposed by Sweden would severely erode the profitability.

The government directive mandates mining companies to settle their dues in advance. Complying with the prepayments would constrain the firms. Imposing additional cash constraints during the problematic days would hurt the going concern of the crypto miners. 

Since the issuance of the tax directive, several mining firms have indicated a willingness to ditch hosting to embrace self-mining. Others are considering reusing the heat emitted by the data centers. Mellerud observed that the move would classify their operations as heat producers.

Mellerud lamented that the firms considering exiting Sweden are bound to face an uphill task. The number of potential buyers has declined, with only a few real firms pursuing the acquisition. 

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