Sweden, Europe’s last stronghold for bitcoin miners, will eliminate tax incentives in July for data centers, potentially putting an end to the industry.

The war in Ukraine has pushed bitcoin miners out of Europe, which is partly why energy prices have risen in Europe. In the northernmost parts of Norway and Sweden, the bitcoin mining industry is still operating and profitable despite the fact that the population has dwindled. These areas are cool and have cheap hydroelectricity.

Even these remote areas of Europe were not immune to the impact of the energy crisis. Prices increased and some mines had to shut down, at least partially, their operations in 2022.

Read more: Europe’s Last Bitcoin Mining Refuge Is No Longer Viable

The energy prices began to normalize by 2023. However, the new tax is likely to stop any new investments in Sweden. At present, there are about 150 megawatts of mining. According to November 2020, the tax on kilowatt hours (kWh) will rise from SEK 0.006 to SEK 0.36.

Jaran Mellerud is a senior analyst with mining services company Luxor Technologies. He said that based on the average electricity price last year, a tax increase could bring the total energy cost down to $0.093/kWh. According to him, the current market conditions would allow a MicroBT Whatsminer, which is a commonly used and moderately efficient machine, to break even.

Hive Blockchain, a Canadian miner that will have 25 percent of its energy capacity located in Sweden by the end of 2022 declined to comment. CoinDesk could not find any instance in which Hive explicitly disclosed the tax increase. The firm has talked about its disagreement over $32.4 millions in VAT it believes it should be recouping with Swedish Tax Authorities.

Mellerud said that Norway, which has 250 to 300 MW of mining, increased its taxes in January from $0.0086 per kWh to $0.015.

Mellerud stated that Norway’s energy costs are lower and its tax increases are modest. Denis Rusinovich said that the industry would continue to grow in Norway. He is co-founder of Cryptocurrency Mining Group, a mining consulting company.

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Mellerud said that the tax increase in Sweden makes mining “prohibitively costly in Sweden” and could end up destroying the industry. Bitcoin miners therefore are seeking solutions.

Enerhash CEO Daniel Jogg said that many miners have decided to diversify because the new tax is going to drastically cut their profits. He operates a mine in Sweden. He said that the tax requires companies to pay for several months in advance, creating serious cash restrictions at a time when the industry is struggling.

Rusinovich said that some miners may try to avoid the tax increase by self-mining rather than hosting other machines.

Mellerud stated that others are trying to find ways around the tax, such as reusing heat produced by data centers so they can be taxed on the basis of heat producers.

Rusinovich said that those who are packing up face a similar battle: “The market for potential buyers is completely dry and there are less than a few real buyers left.”

Broken trust

The new taxation in Sweden is not clear whether it was intended for miners or to be applied to the entire data centre industry. Mellerud noted that the tax increase was proposed by Sweden’s Ministry of Finance. The ministry was also pushing to ban bitcoin mining in Europe last year .

He said that “this could be seen as an attack against bitcoin mining”.

In 2017, Sweden cut taxes on data centers by 98% in an effort to attract business. The budget report said that four years after the tax cut, the industry still hasn’t produced the number of jobs Sweden hoped for and the macroeconomic climate has changed.

Budget report says that the energy crisis has led to higher electricity rates in households. The tax cuts in place could be stealing energy away from industries which create more jobs in the manufacturing sector.

The tax increase was implemented with little warning or communication. Companies like HIVE tout Sweden, a jurisdiction that is “stable”, where they do not worry about sudden unilateral changes to the regulatory regime.

Microsoft (MSFT), who also operates in the region has protested against the suddenness of the measure, especially given that, according to budget, the government had commissioned an energy impact report of data centers, but it wasn’t completed at the time the decision was made.

Rusinovich said that there was no official communication sent to bitcoin miners in the area, but only an page updated on the website of the tax authority to reflect the change.

Miners are unhappy about this, as well as the fact that it will be implemented at the middle of a calendar year. This makes planning difficult. A spokesperson for the Swedish Tax Agency said that companies can ask for a refund of any taxes they paid before July 1.

Enerhash plans to keep its operations in Sweden, despite the fact that they are profitable. Jogg asked why you would invest in Sweden when the legal environment can change so suddenly.

Nikhilesh De, Aoyon Asraf and Nikhilesh De edited the book.