Chinese gaming company The9 got into mining in early 2021, with an agreement to buy over 26,000 machines that would be deployed in China’s Xinjiang, Sichuan and Gansu regions. After China shut off its access to power, The9 announced in August its plans to build a 100 MW facility in Kazakhstan through a joint venture with KazDigital. The9’s next earnings report is expected in March, and just how much Kazakhstan’s strict energy restrictions have complicated its expansion plans is not yet known.
A private mining company, BitFuFu, also shipped an estimated 80,000 ASIC machines to Kazakhstan and suffered bigly from the country’s abrupt energy policy changes. In the fourth quarter of 2021, the company simply abandoned its machines in the region after struggling with Kazakhstan’s power rationing, opting instead to buy new hardware from Bitmain, ship it to the U.S. and resume mining.
Mining transplants from China to Kazakhstan aren’t the only ones struggling with new regulations. And they certainly aren’t the only ones who bet big on expanding operations in the Central Asian country.
Genesis Digital Assets is a leader in the mining industry with facilities operating all around the world since 2013. In July 2020, Genesis CEO Marco Streng published a nearly-800 word blog post on LinkedIn explaining the company’s strategy for “doubling down” on investing in Kazakh mining capacity. Unlike other governments with anti-Bitcoin and anti-innovation mindsets, Streng wrote, Kazakhstan’s government understands “the importance of having an open mind to new ideas.” Streng also noted that the Kazakhstan government expected to attract $740 million in cryptocurrency-related investment over the next three years.
“Our plans alone far exceed this amount,” he wrote.
Of course, these plans were made prior to Kazakhstan’s energy rationing and mining restrictions. Exactly how significantly Kazakhstan’s policy changes have affected Genesis’ growth plans isn’t known. But in November 2021, the company announced plans to build a massive 300 MW mining facility in West Texas.
Enegix is another large-scale mining company operating multiple data centers across Kazakhstan. The company’s third mining facility, designed to power over 50,000 ASIC machines, started running Bitmain hardware in June 2021 . As it battles with Kazakhstan’s severe energy rationing, Enegix is planning to achieve energy self-sufficiency by building its own hydroelectric power plants .
Operating in Kazakhstan since 2018, Xive is another native mining company affected by the region’s policy changes — and its team saw this coming. Xive’s founder Didar Bekbau warned about “harsh electricity limits” as early as September 2021 and continued to tweet prolifically about every major development in the government’s fast-moving process of new regulations around mining and energy use. A few months later, in November, Bekbau posted a video on Twitter of his team completely shutting down its mining facility in South Kazakhstan. Xive still runs “mini farms” in other parts of the country though, Bekbau tweeted in December. But his team is actively exploring other areas for new farms, including the U.S.
Were Kazakh Changes Avoidable Or Predictable?
Every country, county and city around the world presents a unique set of regulatory and political risks that Bitcoin miners are forced to weigh. The variable tradeoffs are endless. And Kazakhstan is no exception. Cheap energy, low taxes and a generally friendly government made Kazakhstan a great home to Bitcoin mining for years. But the recent developments that miners are now struggling with aren’t the result of poor strategy or severe miscalculations by miners. Following China’s mining ban, only clairvoyant miners would have known that Kazakhstan was a “bad” option for relocation.
As some miners leave Kazakhstan for the U.S., the comparative advantages of operating in America are clear. The U.S. offers a more stable legal regime, more robust capital markets and a generally more predictable regulatory environment. But the politics, business norms and other dynamics of operating in the U.S. aren’t equally favorable to every miner, especially for some miners who prioritized quickly bringing their machines back online after being evicted from what was previously the world’s largest mining hub.
In short, political favor toward Bitcoin miners can change anywhere at any time. Every jurisdiction carries risk. Xive’s founder understood this when he tweeted a video of his team shutting down one of its Kazakhstan-based farms saying, “Country risk played out.” The best any miner can do is understand the risk they accept and work to mitigate it as much as possible.
The Next Phase Of Kazakh Bitcoin Mining
What Kazakhstan’s mining industry will become in the next year is an open question. A horde of mining companies descended on Kazakhstan with plans for massive mining operations. And now that the government has placed substantial limits on the sizes of new farms and is considering heavier taxes on mining, the country’s once-promising mining boon looks less auspicious.
Some miners are still optimistic though. Bekbau tweeted in January that Kazakhstan will be a long-term “mining harbour” despite recent adverse policy changes. And a double-digit percentage of Bitcoin’s hash rate is nonetheless significant.
But just because Bitcoin’s hash rate is once again setting record highs doesn’t mean every mining organization has also fully recovered. And after leaving China with plans for large-scale operations in Kazakhstan, many big mining companies are still in the process of adjusting to problematic Kazakh policy changes.
This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
