Bhutan turns to crypto in search of fast growth

Bhutan is investing in everything from bitcoin mining to drone technology as the tiny Himalayan kingdom turns to new-age businesses in search of fast growth and returns.

Druk Holding & Investments, the state-owned commercial holding company, will this month start pitching to investors to raise as much as $500mn for a crypto mining business after partnering with Singaporean group Bitdeer, one of the world’s largest bitcoin miners.

Bhutan’s bet on crypto, which follows that of other countries such as El Salvador and the Central African Republic, comes despite the sell-offs, contagion and scandals that have rocked the sector. The isolated country of 800,000 only allowed television and internet in 1999 and is known for its gross national happiness metric, which seeks to prioritise wellbeing beyond economic growth.

Ujjwal Deep Dahal, DHI’s chief executive, said the tech push would help speed up innovation in the largely rural economy. DHI is also in the early stages of a project to deploy drones in the power sector and in February launched a biometric digital identity system.

DHI is “focusing on the new generation of industries”, he said. These technologies would “provide platforms to solve problems and also provide platforms to create industry and to create a diversified portfolio of investments for us”.

DHI’s core portfolio, which had assets of about $3bn in 2021, consists of Bhutan’s main telecom, power and aviation companies, among others.

Together with Bitdeer, it will approach international institutional investors for funds. Bitdeer said it planned to build a 100-megawatt crypto mining data centre in the country.

Mountainous Bhutan has abundant sources of hydropower, a crucial industry in the country. The companies argue hydropower provides an easy, renewable electricity source for bitcoin mining, an energy-intensive process in which computers solve mathematical problems to create new coins.

Long an absolute monarchy, Bhutan adopted a democratic constitution in 2008 and has averaged 7.5 per cent annual growth since the 1980s, according to the World Bank. The country, which depends on trade with neighbouring India, is also one of the world’s few carbon negative countries, meaning that it absorbs more carbon from the atmosphere than it releases. High-end tourism is an important source of revenue, with visitors charged a $200-a-day levy.

Jaran Mellerud, a Norway-based analyst at bitcoin mining data provider Hashrate Index, said bitcoin mining could help Bhutan diversify revenues from hydropower, most of which is exported to India.

Bhutan could become “the biggest bitcoin miner per capita in the world”, he said.

But he expected the country to struggle to raise $500mn given the turmoil in the industry. “In 2021, every week a miner was raising $50mn, $100mn,” Mellerud said. “Now it’s big if a miner is able to raise $50mn . . . So $500mn in a bear market for a bitcoin mining operation? I think it’s a bit too much.”

Both companies have been exposed to the turbulence in crypto. Bitdeer suffered heavy losses last year and its Nasdaq-listed shares are down about a third since it listed through a special purpose acquisition vehicle last month. Forbes reported last month that DHI held tens of millions in cryptocurrencies with bankrupt lenders BlockFi and Celsius, though DHI denied that it lost money in the deals.

Dahal argued that mining represented the safest part of the industry. “We’re sticking largely to the mining sector which seems to be the least risky vertical.”

Mellerud cautioned that miners were “extremely impacted” by the bear market in crypto, nonetheless.

DHI is also piloting a project to use drones to inspect and maintain infrastructure in the country’s power sector. DHI last year said it was in talks with Japanese drone company Sora to develop technology and even manufacture in the country. “Because we are in very hilly terrain, drones have difficulty flying,” Dahal said. “So it’s a very interesting space for drone researchers to test at 4,000 metres.”