Despite initial growth and expansion in the Bitcoin mining industry, companies faced economic and political challenges resulting in a lackluster year-end performance.
Specifically, Canada’s market share in the global network hash rate reached a peak of 13% in 2021 but saw a decline to 7-8% by the end of 2022, according to the blog post from January 12th from Hashrate Index.
The digital asset market saw a surge in defaults and bankruptcies, with FTX experiencing the most significant collapse. This was due to a combination of increasing borrowing costs and decreasing asset values, causing the price of Bitcoin to drop by 65%.
The digital asset mining industry faced further challenges as network difficulty increased by nearly 46%, primarily due to investments made in ASICs and infrastructure during more favorable economic conditions in the past.
As a result, the price miners receive for their digital commodity, hashrate, saw a drastic decrease of 76%. Additionally, miner profits were further impacted by the rising energy costs in Canada and globally, putting additional pressure on their margins.
Regulatory Headwinds Rising for Bitcoin Miners in Canada
The blog post highlighted that in February, Canadian Bitcoin Miners were Blindsided by the Proposed Amendment to the Excise Tax Act, which would classify mining as non-commercial, resulting in a hidden tax hike of 5-15%.
Additionally, Canadian miners formed the Fair Tax Treatment for Responsible Digital Asset Mining Coalition and successfully paused the proposed changes, but the proposed tax change still looms over all potential new investments in the country.
Policy challenges were not limited to the federal government, with Ontario Energy proposing to exclude cryptocurrency miners from participating in the Industrial Conservation Initiative (ICI) and other provinces removing electricity allocations for new mining operations, citing energy-use concerns.
Additionally, in March, Ontario proposed banning cryptocurrency miners from a conservation program that reduces electricity costs, according to the blog post.
Other Canadian provinces have also restricted new mining operations due to energy concerns, despite the flexibility of Bitcoin mining and its high electricity production per capita.
As per the blog post:
We believe the government’s misguided approach to Bitcoin mining is the main driver behind the decline in Canada’s hash rate market share in 2022.
According to the blog post, the digital asset mining industry in Canada is facing challenges but has the potential for growth in 2023. The blog post calls for a permanent and coordinated lobbying effort across Canada to signal to governments that the industry is here to stay and to address current and future issues.
The industry also needs to better highlight how it contributes to society by creating jobs, bringing investment to local communities, and improving energy efficiency and sustainability.
The post concludes that the industry’s ability to change the narrative and educate policymakers on the benefits of responsible digital asset mining will be key to its success in 2023 and beyond.