Inside Bhutan’s secretive Bitcoin mining operation

The tiny Himalayan country of Bhutan was new to Bitcoin. Still, Forbes’ latest bombshell report sheds light on the extent of the kingdom’s secret mining operations.

The kingdom itself reversed an investigation into suspected Bhutan mining schemes when it confirmed to local newspapers that it was engaged in mining digital assets. The CEO of Bhutan’s state-owned holding company Druk Holding & Investments (DHI) said the company entered the mining field “a few years ago” when BTC was priced at around $5,000.

This is consistent with leaked information from a source familiar with the matter, who Forbes says the country has had sovereign mining operations since at least 2020.

But Bhutan’s involvement in the crypto industry doesn’t stop there.

What’s Behind Bhutan’s Mining Business Growth

The first allegations of the country’s mining involvement began in 2021 when HMRC reported that it had imported $51 million worth of “processing equipment.” This was a significant jump from his $1.1 million worth of these units imported in 2020. In 2022, the country imported her $142 million worth of computer chips.

According to the Ministry of Finance’s 2022 Macroeconomic Statistics report, total imports in 2022 increased by 35.8% compared to 2020. The main driver of this growth was the ‘processing and storage units’ DHI imported for ‘special projects’.

Chart showing Bhutan’s trade performance from 2019 to 2023 (source: Kingdom of Bhutan Macroeconomics Department)

Further investigation found that Bhutan classified these processing equipment under the same export label used by Asian bitcoin mining hardware makers. Official data showing that almost all of these units were sourced from Hong Kong and China confirmed his suspicions that these were in fact his ASIC miners.

State involvement in mining was confirmed again in Bitdeer’s recent SEC. filingThe NASDAQ-listed company has revealed that about 100 MW of its planned 500 MW increase in power supply this year will come from Bhutan.

“It is planned to generate 100 MW of the 550 MW electricity supply from Bhutan. Construction of the mining data center will start in the second quarter of 2023 and is expected to be completed in the third quarter of 2023.”

Bitdeer is one of the largest Bitcoin miners in the world, with a total hash rate on par with Core Scientific, Riot and Marathon. Approximately 25% of Bitdeer’s hash rate capacity is used for self-mining and the rest for cloud mining. Neither Bitdeer nor Bhutan have commented on the matter, so it remains unclear who will use and own the additional hash rate.

Confidential sources also revealed that the Bhutanese government is in talks with mining companies other than Bitdeer. Sources at other mining services and pools said they had “preliminary consultations” with government officials, including DHI representatives, on building and operating a hydropower mining project in Bhutan. The state has also hired consultants to advise on mining strategies. They told Forbes that before Bitdeer’s announcement, Bhutan had inquired about “his 100 MW operation connected to a hydropower plant.”

Bhutan also appears to be involved in aggressive efforts to attract more independent miners into the country. Mann’s club. Threw Last year, the mining business lucrative for outside investors. The pre-installed container will be equipped with 250 of his ASIC T17+ miners delivering around 700 kW of power. Recovering his $800,000 investment on a single container will take 12 to 18 months, with the company retaining his 10% of the mined coins to cover maintenance and foundation costs.

Dasho Ugen Tsechup Dorji, vice president of the Singapore Bhutan Association and uncle of the Bhutanese King, told Forbes the project was on hold. He said the Bhutanese government has not approved “private sector involvement in this project”. Humphrey Zhang, a board member of the association, said the collapse of FTX and logistical problems “stoked investor interest.”

Funding Bhutan’s Fourth Industrial Revolution

Despite Bhutan’s success in preventing a widespread pandemic, the small landlocked country suffered devastating economic consequences after two years of isolation. Whether this was the main driving force behind mining intensification is unclear, but involvement in the cryptocurrency industry has indeed increased over the past two years.

A source familiar with the matter told Forbes that the pandemic has actually triggered Bhutanese officials to start negotiations with miners and mine suppliers.

Court documents reviewed by Forbes reveal that Druk Holding & Investments is a client of BlockFi and Celsius. In February 2023, BlockFi filed a complaint with her DHI, accusing the fund of failing to repay her $30 million loan. DHI reportedly in February 2022 that he borrowed 30 million USDC and deposited 1,888 BTC as collateral. The complaint alleges that DHI “failed and refused” to repay the loan even after BlockFi liquidated the collateral. The collateral was valued at approximately $76.5 million at the time of the loan, leaving an outstanding balance of approximately $830,000.

In October 2022, Celsius released records showing that DHI was one of the institutional investors. The documents show that the DHI and another account called the “Druk Project Fund” deposited, withdrawn and borrowed BTC, ETH, USDT and other cryptocurrencies between April and June 2022. was Deposited over $65 million, nearly $18 million in digital assets.

DHI CEO Ujjwal Deep Dahal said the borrowed funds were used to “make certain investments” and “all were repaid and settled without membership fees.”

DHI claims no losses were incurred on loans from Celsius and BlockFi, and Dahal hints that the fund used proceeds from its bitcoin mining operations to cover its losses.

Bhutan’s covert foray into the crypto industry has been criticized by many. The DHI apparently never disclosed its involvement with Celsius and BlockFi, and the Treasury never disclosed the purpose of the $142 million worth of imported computer chips.

While some have criticized the secrecy, many appear to be concerned about the volatility of the cryptocurrency market and its potential impact on the economy of troubled countries.

Dahal said DHI has a diversified portfolio and does not believe the risks of cryptocurrency mining and management are greater than those associated with other asset classes. The company believes it has mitigated most of the risks associated with cryptocurrencies by mining them “using green energy and at relatively low cost” rather than engaging in trading.

Mining is part of DHI’s “forward-looking investment strategy” to support what the country calls the Fourth Industrial Revolution. Bhutan’s economic stagnation has triggered a massive wave of migration, and the government is stepping up efforts to develop an economically self-sufficient and competitive technology industry.

Post Inside Bhutan’s covert bitcoin mining operation first appeared on CryptoSlate.

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