Bitcoin miners pivot to South-east Asia after China crackdown

KUALA LUMPUR – The 6.9ha cement slab in the middle of a Borneo industrial area once belonged to a logging company. Long ago, that business abandoned the site to the elements, leaving just rudimentary structures and a four-storey concrete birdhouse made to lure swiftlets whose nests, built with saliva, fetch high prices in China.

But in 2023, another industry moved in: bitcoin miners. Sheltered by a vast, sheet-metal roof, more than 1,000 machines now roar away, while hundreds more sit nearby in cardboard boxes waiting to be unpacked.

The site in Tanjung Manis, Sarawak, is the largest of four operations in the area run by miner Bityou. Owner Peter Lim chose the location after he was forced to shutter a larger 10,000 rig, 20-megawatt (MW) operation in China, following a ban on Bitcoin miners in 2021.

He is one of many miners popping up in South-east Asia – not all of them entirely legal, although Mr Lim says Bityou’s operations are above board – after China’s crackdown.

China was once the dominant country for Bitcoin mining, the process of using computing power to solve encryption puzzles in return for new tokens.

In 2019, it accounted for about three-quarters of global activity, according to data collected by Cambridge University.

But when the Chinese authorities declared that any crypto-related transactions would be considered illicit financial activity, the industry was decimated.

“Back then, some of the state governments, they just seize your property,” said Mr Alex Loh, Mr Lim’s colleague at Bityou, in an interview.

Mr Loh said some 3,000 of his machines were seized at a mine he used to run in Inner Mongolia. He was also a stakeholder in a 120MW site in Sichuan province that suffered a similar fate.

“We spent about three months to build that place,” Mr Loh said. “But (after) we started our operation, in less than a month, we had to stop.”

Despite China’s clampdown, Bitcoin has more than quadrupled since the start of 2023 to trade at around US$66,000 on June 16, helped in part by the US launch of spot Bitcoin exchange-traded funds in January.

Renewed institutional interest has been a boon for miners, who earned revenue of US$960 million (S$1.3 billion) in May, according to data tracked by The Block Research.

Bitcoin’s strong performance partially offsets the impact of April’s “halving”, a quadrennial event that slashes the rewards earned by miners for maintaining the network.

The US had become the global leader in terms of hash rate – a measure of the computational power used to process transactions on the Bitcoin network – by January 2022, according to Cambridge University data.

Now, South-east Asian nations are also climbing the ranks. Malaysia contributed 2.5 per cent of the global hash rate, the Cambridge data shows, ranking it among the top 10 nations. Preliminary results from more recent mining research suggest activity in Indonesia “markedly rose” in 2022 to between “lower and mid-single digit percentages”, said Mr Alexander Neumuller, a research lead at Cambridge.

The availability of competitively priced power, skilled labour and, crucially, existing infrastructure add to the region’s allure for miners, Mr Lim said.

Rigs are popping up all over South-east Asia at abandoned shopping malls, former steel factories and on the side of hydroelectric power projects, as miners try to find sites where they can access the ample electricity they need.

That is because the region does not have the option of exploiting “gluts of power” like miners in the United States, who can dial up their activity in periods of lower power demand for preferential prices, according to Mr Fred Thiel, CEO and chairman of Marathon Digital Holdings, one of the world’s largest Bitcoin miners.

Manufacturers of mining rigs have followed the miners to South-east Asia, moving some operations to the region as they seek to meet burgeoning demand and, like many other industries, to avoid US tariffs on China.

Until 2018, when former US president Donald Trump imposed a 25 per cent duty on a range of electronic goods from China, Bitcoin rig production was “almost entirely” based in Shenzhen and Guangzhou, according to Mr Ben Gagnon, chief mining officer at Bitfarms, which is currently the target of a US$950 million takeover bid.

“The vast majority of miners now are produced in Malaysia. There are manufacturing locations also in Thailand, Indonesia, Taiwan, the US also to some extent,” said Mr Gagnon, who has visited manufacturing facilities in Penang and Indonesia to run quality control checks for the Toronto-based miner.

Some of sites belong to Bitmain, others to its closest rival MicroBT. Bitmain declined to comment while MicroBT said, in e-mailed comments, that it had manufacturing in the region and facilities in both Thailand and the US.

Finding a home

Setting up shop is not always straightforward for miners. Like Mr Lim, many are taking root in unexpected places, often leading a precarious existence thanks to frequent shifts in the stance of regulators as well as conditions that tend to favour smaller-scale outfits.

Mining in Laos, which has a burgeoning hydropower industry, was derailed by an extreme drought in 2024, which meant the state-run power company withdrew electrical supply from miners. Today, crypto mining accounts for more than a third of all power demand in the country, Mr Somboun Sangxayarath, an adviser at Electricite Du Laos, recently told Reuters.

Police raids on Bitcoin miners illegally siphoning energy are a regular occurrence in Malaysia, Indonesia and Laos. Electricity theft by Bitcoin miners had cost Malaysia an estimated RM2.3 billion (S$660 million) and rising as at early 2022, according to Datuk Seri Takiyuddin Hassan, at that time Malaysia’s energy and natural resources minister.

Near Mr Lim’s Sarawak operation, in Kuching, another miner is looking to set up in the shells of former steel plants and plastics factories, according to a pitch deck seen by Bloomberg. A partnership between Sovereign Sengalang and Sprint Capital Management kicked off operations in the region earlier in 2024 and is now seeking investment to develop “new brownfield sites”.

The investment comes as the state authorities unveiled plans in 2023 for Sarawak to transition from a resource-based economy to an “environmentally sustainable technology-based economy” by 2030.

Despite the challenges, significant growth is expected in both mining and manufacturing. “South-east Asia is poised to take off in the next few years,” said Mr Taras Kulyk, founder and CEO of SunnySide Digital, a distributor of data centre hardware. BLOOMBERG