China’s crypto miners are moving to Ethiopia

• Cryptominers see Ethiopia as an attractive location
• Low electricity prices promise a competitive advantage
• Foreign companies bring urgently needed foreign currency to Ethiopia

Attractiveness due to low electricity prices

More and more Chinese crypto miners are moving their operations to Ethiopia, Bloomberg reports. Ethiopia, which has allowed Bitcoin mining since 2022 although trading in cryptocurrencies is still banned, attracts miners with low electricity costs and a supposedly friendly government. This development comes in the context of increasing cooperation between Ethiopia and China, particularly through the construction of the Grand Ethiopian Renaissance Dam (GERD), in which Chinese companies were involved.

Advertising

The Grand Ethiopian Renaissance Dam, Africa’s largest hydroelectric project, plays a crucial role in Ethiopia’s attractiveness to Chinese Bitcoin miners. The construction of the dam led to a significant expansion of the country’s electricity generation capacity. The miners get their energy from the nearby substations that are connected to the GERD. This development has made Ethiopia an attractive location for Bitcoin mining as electricity costs are among the lowest in the world, according to Bloomberg.

For example, the cost of electricity for Bitcoin miners in Ethiopia is about 3.14 US cents per kilowatt hour, Bloomberg reported, citing state-owned power producer Ethiopian Electric Power. This is on a similar scale to Texas, the current center of Bitcoin mining. However, according to Bloomberg data, prices in Texas are significantly more volatile, while in Ethiopia they are more stable and are expected to fall further once miners are directly connected to the power plants.

Ethiopia benefits from foreign exchange earnings

The establishment of Chinese Bitcoin miners in Ethiopia brings a number of benefits to the country. On the one hand, miners pay for the electricity they use in foreign currency, which brings much-needed foreign currency income into the country. This is particularly important for Ethiopia, which is negotiating with the International Monetary Fund (IMF) for a rescue loan after suspending interest payments to private creditors in December 2023, according to information seen by Bloomberg.

Challenging environment for crypto miners

Despite the opportunities, the decision also carries risks for Chinese companies and Ethiopia. Previous examples such as China, Kazakhstan and Iran show that countries that welcomed Bitcoin mining later cracked down on the industry. Ethiopia, still recovering from a civil war, faces political and economic challenges associated with the adoption of Bitcoin mining. Still, according to Bloomberg, Chinese companies see Ethiopia as a promising market that offers low electricity costs, a potentially friendly government and an ideal environment for Bitcoin mining.

However, experiences from other countries show that political and economic risks exist. Nevertheless, Ethiopia remains attractive to Chinese Bitcoin miners. The decision to move millions of dollars worth of machinery to a country that has just emerged from a civil war underscores the complex and challenging political and economic conditions under which miners operate. The volatility of the Bitcoin market has already severely affected some companies operating in the sector. An example of this cited by Bloomberg is mining company Core Scientific, which filed for bankruptcy in December 2022 as cryptocurrency markets collapsed. Despite these challenges, the company was able to emerge from bankruptcy proceedings 13 months later after the price of Bitcoin increased by almost 150 percent. This highlights the risks and uncertainties faced by Bitcoin mining companies. Overall, Ethiopia could become a significant location for Chinese Bitcoin miners, Bloomberg concluded.

Editorial team finanzen.net