Bitcoin mining powerhouse fueled by central bank financing, Bhutan emerges as the world's fourth-largest holder of BTC

Bhutan, known as the world's happiest country, holds 13,093 bitcoins, ranking as the fourth largest bitcoin holding country in the world, following the United States, China, and the United Kingdom. With low-cost hydroelectric power and cool climate conditions, Bhutan has been investing in cryptocurrency mining for many years with funding from the central bank RMA. The IMF believes that while bitcoin mining can increase exports and fiscal revenue, it also brings challenges of volatile returns and assessing the demand for electricity competition.

Mining Bitcoin Internally, Bhutan Ranks Fourth in Global Bitcoin Holdings

According to Arkham, Bhutan, known as the happiest country in the world, holds 13,093 Bitcoins, making it the fourth largest Bitcoin holder globally, following the United States, China, and the United Kingdom. Unlike other countries, Bhutan's Bitcoin holdings mainly come from its mining operations rather than assets confiscated by law enforcement. Another country famous for adopting Bitcoin as legal tender, El Salvador, holds 5,882 Bitcoins.

According to the IMF's latest report, Bhutan's nominal GDP for the 2023/2024 fiscal year is 261,026 million BTN, approximately $3.12 billion, with a total of 13,093 Bitcoins held, valued at $823 million, representing 26% of its GDP.

Bitcoin Mining Funded by the Central Bank of Bhutan

Due to Bhutan's low-cost hydroelectric power and cool climate conditions, the commercial entity of the Bhutanese government, Druk Holding & Investments (DHI), has been investing in crypto asset mining for several years. DHI's 420-megawatt facility began mining in 2022, primarily focusing on Bitcoin. A second 500-megawatt mining facility in collaboration with Bitdeer is under construction and expected to start operations in mid-2025.

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The initial investment by DHI was funded through loans provided by the Royal Monetary Authority (RMA), Bhutan's central bank. From August 2020 to April 2022, RMA acquired a total of $539 million worth of USD-denominated securities issued by DHI. In contrast, DHI's exposure to Bitdeer's business is limited to selling electricity to the facility through power purchase agreements, with Bitdeer paying higher fees compared to other high electricity-consuming domestic users.

However, the IMF believes that RMA's loans have put significant pressure on the country's reserves and raised governance concerns. These securities represent about 40% of the pre-transaction reserves. DHI only publicly disclosed its crypto asset mining investments in April 2023.

Bitcoin Volatility and Power Issues as Challenges

The IMF points out that due to the high volatility of Bitcoin prices, the returns on this investment are uncertain. DHI can easily repay RMA and earn profits only if the Bitcoin price remains around $60,000 per coin. So far, DHI has repaid its debts to RMA in March 2024 and paid the government approximately $33 million in special dividends. They have committed to provide another $64 million in special dividends in the 2024/25 fiscal year. Meanwhile, RMA has agreed to extend the maturity of issued DHI securities by two years.

If RMA assesses that reserves will fall below the constitutional minimum, they have the right to demand the sale of crypto assets. Bhutan authorities emphasize the importance of investment opportunities, which may also stimulate other technological investments. However, the IMF report notes that while Bitcoin mining can increase exports and government revenue, it also brings challenges in dealing with volatile returns and assessing the demand for power competition.