Thukten Zangpo  

Bhutan has invested USD 539 million in cryptocurrency mining operations over the last two fiscal years between July 2021 and June 2023, resulting in a sharp decline in the country’s reserves.  

This was equivalent to Nu 31.51 billion or 21 percent of the fiscal year 2021-22’s gross domestic product. 

The majority of cryptocurrency Bhutan mines are Bitcoin (BTC), followed by small allocations for mining Ethereum.

Bhutan’s investment is at the advantage side as the Druk Holding and Investments (DHI) announced that it began cryptocurrency operations between 2019 and 2020, when the price of Bitcoin was about USD 5,000 to USD 8,000. As of yesterday, one Bitcoin was priced at USD 64, 042.

According to the World Bank’s latest report, “Bhutan Development Update”, the DHI financed this investment through loans from the Royal Monetary Authority (RMA) to accelerate the country’s digital transformation and diversify the economy.

“The bond proceeds were used to import IT equipment for cryptocurrency mining operations and related goods,” the Bank said.

DHI also imported related goods to expand the electricity network. 

The RMA and the finance ministry have announced eleven issuances of bonds till date. As of December 2023, the government’s domestic debt from bond issuance was reported at Nu 28.1 billion.

DHI is required to repay USD 224 million in fiscal year 2023-24 and USD 315 million in fiscal year 2024-25 to the RMA, according to the loan repayment schedule, the Bank said. 

The Bank also said that the recent increase in cryptocurrency values has helped the DHI to facilitate timely repayments. 

It added that the import of IT equipment and related goods for crypto mining resulted in decline in international reserves in fiscal year 2021-22 and widened the current account deficit (CAD).

Between July 2021 and June 2022, reserves sharply declined by 34.7 percent, from USD 1.27 billion to USD 832.9 million. 

The reserves further declined to USD 573 million as of June 2023, less than half of reserves in June 2021. As of November, last year, the reserves stood at USD 533.29 million.  

Going through the trade figures, Bhutan imported Nu 4 billion and Nu 11.91 billion worth of IT equipment in 2023 and 2022, respectively. In 2021, Bhutan imported Nu 4.33 billion worth of IT equipment. 

The Bank said that although exports were supported by higher tourism receipts, hydropower exports declined due to increased domestic consumption, reflecting the higher electricity needs for energy-intensive crypto mining operations. 

The Bank added that crypto mining-related IT equipment imports widened the CAD to 34.3 percent of GDP in FY22-23.

DHI, according to the government, has used all the RMA loan proceeds and there will be no further imports of IT equipment in fiscal year 2023-24, the Bank said. 

The CAD is expected to sharply decline as IT equipment imports fall, and is expected to moderate further in the medium term, supported by an increase in tourism from fiscal year 2024-25 and electricity exports with completion of Puna-II in fiscal year 2025-26. 

The Bank projected the country’s CAD to improve to 15.7 percent of GDP in this fiscal year 2023-24 with lower trade deficit and reduction in imports. The projection was also because of decline in crypto IT equipment, accounting for 6 percent of 2022’s GDP. 

At the same time, international reserves are also expected to remain at USD 516 million in fiscal year 2023-24, equivalent to 3.3 months of import coverage.