Canadian Bitcoin Mining 2022 Recap and Outlook

Hashrate Index | Ben Harper, Ethan Vera, Colin Harper | Jan 4, 2023

Canadian market share global hashrate - Canadian Bitcoin Mining 2022 Recap and Outlook

Image: Luxor Business data

With access to abundant, low cost, sustainable energy, a highly skilled workforce, cold climate, underutilized industrial infrastructure (particularly in rural areas), and a relatively stable and secure political environment, Canada was naturally positioned to be a global leader in Bitcoin mining.  2022 went very differently.

  • Economic and political headwinds made for a disappointing end to the year. We estimate that Canada’s market share of global network hashrate peaked at 13% in 2021, only to fall to 7-8% by the end of 2022.
    • Bitcoin was no exception: Attempting to bring inflation back to target levels, central banks raised interest rates, causing the prices of most financial assets to crash. In the real economy, growth in Canada and around the globe slowed substantially, and the United States experienced a brief (technical) recession.

See:  Canada: Release Of Draft Tax Legislation For Consultation including GST/HST for Crypto Mining

  • Hash woes: To the further detriment of miner revenue, network difficulty rose almost 46% primarily due to ASIC and infrastructure investments made under better economic conditions months prior. Hashprice – what miners are paid for hashrate, the digital commodity they produce – was down almost 76% as a result.
  • Politics/legal: In the aftermath of the Canadian trucker protest, governments across the country brought in harmful legislative proposals and new regulations which made life even more difficult for Canadian Bitcoin miners, pushing many to look elsewhere to expand their operations.
    • In February, without advance notice to industry, the Department of Finance proposed an amendment to the Excise Tax Act which would declare digital asset mining not a “commercial activity” in Canada.
      • Despite the fact the industry employs thousands of Canadians and contributes tens of millions of dollars in tax revenue to support public services at all levels of government.
      • If the proposal passes, companies engaged in digital asset mining would no longer be eligible to receive Input Tax Credits for the value added taxes paid on mining inputs increasing the cost of Bitcoin mining by 5% - 15%, making Canada a significantly less competitive jurisidiction.
      • In response, Canadian miners formed the Fair Tax Treatment for Responsible Digital Asset Mining Coalition. They have so far been successful in pausing the proposed changes and have been imploring officials to consult with industry to learn more about digital asset mining, how it works, and how fair taxation and regulation can foster a healthy Canadian digital mining industry.

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  • What's up for 2023?  Canada’s Bitcoin mining industry is well overdue for a serious, permanent, and coordinated cross-Canada digital asset mining lobbying effort. A permanent body signals to governments that our industry is not going away, which could help with a resolution on the Federal tax issue, establish a more credible deterrent for harmful policy endeavours in the future, and get ahead of issues on the industry's behalf.
    • The industry needs to better highlight how producers of digital commodities add value to Canadian society.
      • Digital asset miners create jobs and bring investment to their local communities, often in rural or remote areas with limited opportunity and underutilized industrial infrastructure.
      • They improve environmental and energy system efficiency and sustainability, by using stranded gas that would otherwise be flared or vented, support electrical grid stability through demand response, and enable the build-out of new renewable generation assets.

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