Refusal of “gingerbread”
Kazakh miners have not recovered from early 2022 protests, and new measures by authorities have pushed many to move away from the country once seen as the most attractive place to buy cryptocurrencies in the CIS. AMarkets shared this with Gazeta.ru.
Mining rates rose sharply at the start of 2022. “The Kazakh government understands the situation: miners profited but used the cryptocurrencies in other nations,” explained the crypto expert.
Another reason for the government’s stance, according to the expert, is the central bank’s plan to introduce a digital tenge. In that scenario, cryptocurrencies would compete with the national currency, and the regulator would not allow that, Deev contends.
Anton Bykov, a senior analyst at Esperio, told socialbites.ca that the sector is undergoing a voluntary-mandatory “whitewashing” in Kazakhstan.
“The government has offered incentives but mostly relies on pressure, raising taxes on cryptocurrency production and conducting raids to uncover “gray” miners who threaten the stability of Kazakhstan’s energy system.”
— said the expert.
According to Kazakhstan’s financial monitoring agency, 51 mining farms have already been closed, and 55 have voluntarily dismantled equipment and moved operations to other countries. About 30 miners are officially registered within Kazakhstan.
Bykov suggested that authorities are trying to consolidate the legitimate miners and channel the electricity freed after the shutdown of the gray miners toward them.
“If earlier gray miners hid under a blanket of electricity, the state has now redistributed power resources in favor of lawful companies,” he noted.
BitRiver CEO Igor Runets told socialbites.ca that Kazakhstan slipped from second place to Russia in terms of mining volumes this year.
The United States leads, followed by Russia, with Kazakhstan now in third place. He added that miners still operate in Kazakhstan, but more market participants are leaving wherever they can sustain operations.
The United States remains the top destination, with Russia in second place, and Kazakhstan timing and again in the top three. Runets noted that miners still operate in Kazakhstan but more participants are relocating to places that allow ongoing operations.
Following the example of China
Artem Deev of AMarkets observed that most CIS nations are not prepared to become a new base in 2020 when broad restrictions on cryptocurrencies and mining began in China.
Many miners later chose Kazakhstan, enabling the country to rise to second worldwide in mining after the United States within two years.
Today, Commonwealth countries are more likely to imitate China and Kazakhstan by tightening conditions for miners rather than easing them.
BitRiver head Igor Runets said Kyrgyzstan recently amended its laws to raise electricity costs and impose other limits on digital currency mining.
“Energy problems and shortages worsened there, pushing existing mining capacities and new major projects to relocate to other jurisdictions,” he added.
Anton Bykov of Esperio noted that the most profitable places for cryptocurrency mining currently include the USA, Costa Rica, Russia, Georgia, and Kazakhstan.
Russia’s turn
Artem Deev of AMarkets said that among CIS countries, Russia is the most attractive for mining due to low electricity tariffs.
“The key word here is yet. Of course, the government will consider raising mining rates,” the expert warned.
He explained that while certain regions are especially suited for cryptocurrency production, new measures may be introduced. He cited the Irkutsk region as an example.
Igor Runets, head of BitRiver, also sees Russia as the most promising CIS state for mining.
“The country has energy capacity to spare and there is hope for new rational, business-friendly laws on mining and the circulation of digital currencies,” he said.
According to the expert, the large surplus of energy capacity already creates favorable conditions for mining and other crypto projects.
Esperio analyst Anton Bykov suggested that miners should also consider Georgia. If choosing only among CIS nations, Russia and Georgia are of interest, he stated. Bykov noted a rise in the “energy footprint” of miners in Russia.
“This shows up in increased electricity consumption in Russia during the first four months of 2022 in the IPS of the East (Amur, Khabarovsk, Jewish Autonomous Region, Primorsky, and Sakha), as well as in the South and Siberia,” the expert said.
To determine with certainty whether the increase is due to the relocation of miners to Russia rather than an uptick in domestic mining, an updated report from the Cambridge Centre for Alternative Finance (CCAF) will be needed, providing data on each country’s share of mining.
Nuances
The interviewed experts believed that only Russia itself, or a possible government decision to tighten mining rules, could hinder Russia’s position in the crypto market.
Artem Deev of AMarkets explained that the announcement of a digital ruble launch in 2023 signaled such tightening may come.
“Therefore, tighter crypto legislation and mining rules in Russia could be expected by the end of 2022,” the expert asserted.
Esperio analyst Anton Bykov noted a tightening trend across almost all CIS countries.
“This is not uniform, though. Kazakhstan and other Central Asian nations tighten rules faster because of electricity shortages, while tightening is slower in Russia or Georgia,” he said.
The expert believes regulation of cryptocurrency mining will tighten across the post-Soviet space in a year or two.
BitRiver CEO Igor Runets viewed the changes in Russian mining regulation more positively.
“A strong influx of solvent mining investors is arriving in Russia, and the country stands a chance to become a global leader with balanced regulation in this area.”
Deev estimates that if Russia tightens its legislation, the miners will continue to gravitate toward the United States, which remains the world leader in mining.
“Other countries are likely to follow China, where the digital version of the national currency was introduced while crypto legislation tightens,” he concluded.