Despite a lack of clear legal rules, some Bitcoin miners in Southeast Asia are still striving to operate within the legal framework. This article is sourced from Bloomberg reporter Ryan Weeks’ “Bitcoin Miners Pivot to Southeast Asia After China Crackdown,” compiled by Golden Finance’s Baishui and reorganized by Foresight News.
In 2023, a new industry has emerged: Bitcoin mining. Under the shelter of a huge metal roof, there are now more than 1,000 machines roaring, with hundreds more machines waiting to be unpacked in nearby cardboard boxes.
Located in Sarawak, Malaysia, the minefield is the largest of the four mines operated by the mine merchant Bityou in the region. After the ban on Bitcoin mining in 2021, boss Peter Lim was forced to shut down a large mine with 10,000 machines and 20 megawatts in China. He then chose this location. “Most companies have left this industrial park,” Lim said. “We decided, why not use these abandoned resources?”
Bityou’s mining equipment in Sarawak. Photographer: Ryan Weeks/Bloomberg
He is one of the many miners who emerged in Southeast Asia after China cracked down on Bitcoin mining. While Lim says Bityou’s operations are legal, not all miners are. China was once the dominant country in Bitcoin mining, the process of using computing power to solve cryptographic problems in exchange for new tokens. According to data collected by the University of Cambridge, Bitcoin mining accounted for about three-quarters of global activity in 2019.
However, when Chinese authorities announced that any transactions related to cryptocurrencies would be considered illegal financial activities, the industry was severely affected.
Despite China’s harsh measures, the price of Bitcoin has more than tripled since the beginning of last year, with the trading price around $67,000 at lunchtime in Singapore on June 13. Part of the reason is the launch of a spot Bitcoin ETF in the United States in January, reigniting institutional interest. According to data tracked by The Block Research, miners earned $960 million in May. Bitcoin’s strong performance partly offset the impact of the “halving” in April, an event that occurs every four years and significantly reduces the rewards miners receive for maintaining the network.
Mining activity in Southeast Asian countries is on the rise
According to data from the University of Cambridge, as of January 2022, the United States has become the global leader in Bitcoin network hash rate (a measure of computing power used to process transactions).
Now Southeast Asian countries are also climbing. Cambridge data shows that Malaysia accounts for 2.5% of the global hash rate, ranking among the top 10 countries. Alexander Neumüller, director of Cambridge Research, said preliminary results of recent mining studies suggest that activity in Indonesia has seen a “significant increase” in 2022, reaching “single-digit to mid-single-digit percentages.”
Bitcoin mining activity shifts to the United States, global hash rate estimates by country
Lim said that competitive electricity prices, skilled labor, and crucial existing infrastructure have increased the region’s attractiveness to miners.
As miners try to find locations with ample electricity, mining machines are appearing in abandoned shopping centers, former steel mills, and hydroelectric projects across Southeast Asia. This is because the region cannot take advantage of the “electricity surplus” option that US miners have. US miners can increase mining efforts when electricity demand is low to get discounted prices, according to Fred Thiel, CEO and chairman of Marathon Digital Holdings, one of the world’s largest Bitcoin miners.
Despite a lack of clear rules, some miners in Southeast Asia are still striving to operate within the legal framework. Other miners engage in illegal electricity theft, leading to government raids on mining activities.
Mining machine manufacturers are also following miners to Southeast Asia, relocating some of their business to the region to meet the growing demand.
“Currently, the vast majority of mining machines are produced in Malaysia. There are also manufacturing bases in Thailand, Indonesia, Taiwan, and the United States,” Gagnon said, who has visited manufacturing plants in Penang and Indonesia for quality control inspections for this Toronto-based mining machine manufacturer. Some of these factories belong to Bitmain, while others belong to its closest competitor, MicroBT. Bitmain declined to comment, while MicroBT stated in an email comment that it has manufacturing bases in the region and factories in Thailand and the United States.
Rooting
For miners, setting up mines is not always smooth sailing. Like Lim, many have rooted themselves in unexpected places, and their survival is often precarious due to changing regulatory positions and environments that often favor smaller mines.
Peter Lim and Alex Loh. Photographer: Ryan Weeks/Bloomberg
Laos’ hydropower industry is booming, but this year’s extreme drought has halted the country’s mining industry, with the state-owned power company cutting off power to miners. Somboun Sangxayarath, an advisor to Laos’ electricity company, recently told Reuters that cryptocurrency mining now accounts for over a third of the country’s total electricity needs.
In Malaysia, Indonesia, and Laos, the police frequently conduct raids on Bitcoin miners who illegally steal electricity. According to Takiyuddin Hassan, the former Malaysian Minister of Energy and Natural Resources, Bitcoin miners’ electricity theft has cost Malaysia about 2.3 billion ringgit ($550 million) in losses, and as of early 2022, this figure is still rising.
According to promotional materials seen by Bloomberg, another mining company near Kuching in Sarawak, Lin’s Sarawak mining area, is considering building facilities on the land of a former steel and plastic plant. Sovereign Sengalang and Sprint Capital Management began operations in the region earlier this year and are currently seeking investments to develop the “New Brownfield.” This investment follows the state government’s plan announced last year to transform Sarawak from a resource-based economy to an “environmentally sustainable technology-based economy” by 2030.
Bityou’s factory with fans for cooling machines. Photographer: Ryan Weeks/Bloomberg
Despite the challenges, both the mining and manufacturing industries are poised for significant growth. Taras Kulyk, founder and CEO of data center hardware distributor SunnySide Digital, said, “Southeast Asia is expected to take off in the coming years.”
Lim, from Bityou, surrounded by rows of machines, said miners in Southeast Asia “have to find some unique conditions, whether it’s electricity prices or lack of local competition, some incentive measures, something that can give them a little advantage.”