Will the Middle East become a hub for Bitcoin mining?

The rapid expansion of the digital asset market has led to a surge in Bitcoin mining activities worldwide. As the industry searches for ideal locations, the Middle East has begun to emerge as an attractive hub for Bitcoin mining operations. This article explores the current state of Bitcoin mining in the region, the factors contributing to its attractiveness, and the future outlook for the industry in the Middle East.

State of the Bitcoin mining industry in the Middle East: Major projects announced

• UAE

As of June 2023, a total of 250 MW in Bitcoin mining facilities has been announced. A key player is Marathon Digital Holdings, which has partnered with Abu Dhabi-based Zero Two to establish a USD 400 million Bitcoin mining facility with a combined capacity of 250 MW. The facility, expected to launch as early as 2023, will consist of two mining sites, one in Abu Dhabi's sustainability hub, Masdar City, and the other in Mina Zayed's port zone. This venture marks a significant departure from Marathon's typical reliance on hosting companies. It also highlights Abu Dhabi's growing interest in the digital asset sector, which has been further demonstrated by recent approvals granted to Swiss-based digital bank Sygnum and crypto exchange Binance.

• Oman

The country’s sovereign wealth fund, Oman Investment Authority, has acquired a stake in Crusoe Energy Systems, a US company that uses stranded natural gas to power crypto mining, to help reduce gas flaring caused by fossil fuel producers. Crusoe will open an office in Oman to help deploy power generators and mining equipment to capture gas at well sites. Additionally, the Omani government has created a regulatory framework to promote the development of digital currencies, allowing businesses to use digital assets as payment methods and creating a licensing system for digital asset exchanges. Furthermore, according to the market, there is currently up to 300 MW of capacity under discussion.

Anticipating the boom: Reasons behind the expected growth of the Middle East's Bitcoin mining market

Bitcoin miners are finding very favorable conditions for their industry in some parts of the Middle East. We believe 4 key factors will drive this further:

• Excess energy

The Middle East's abundant and price competitive and increasingly CO2-neutral energy resources, provide a commercially attractive environment for Bitcoin mining operations, which are heavily reliant on low-cost electricity. There are three primary sources of excess energy in the region: seasonal load patterns, peak energy curtailment patterns, and the utilization of flare gas and methane from the oil and gas industry. These resources can be used strategically to secure favorable tariffs for mining operations, aligning with the goals of utility companies. Simultaneously, the region's transition towards renewable energy assets presents an additional opportunity. These assets often generate more power than the grid can absorb, especially in winter, resulting in wasted energy. By diverting this surplus to power Bitcoin mining farms, it not only monetizes the energy but also enhances the utilization and return profile of these renewable power assets. Furthermore, the integration of circular economy applications, such as using the heat from data centers for greenhouses and even piloting drinking water production, can add more sustainability to this process.

• Perfect Demand Side Management profile

As the energy transition integrates more intermittent energy producers and consumers (central and decentral renewables, electric vehicles, etc.), the grid of the future will more and more rely on demand side management, i.e., incentivizing flexible on and off ramp of energy usage of industrial and residential consumers. A Bitcoin mining farm can ramp its entire power demand up and down in a matter of minutes. In addition, Bitcoin mining is a sprint, not a marathon given that a new block is mined every 10 minutes. On the one side, it is therefore perfectly fine for miners to ramp down (in line with the business case threshold) and on the other side, grid operators have a flexible demand side management partner that can increase and decrease load and support grid stabilization.

• Strategic investment asset and cornerstone of the digital asset and Web3 economy

More and more investors tend to see Bitcoin as a strategic asset class, allowing for seamless, audit-proof and censorship resistance transactions across borders. In addition, the Bitcoin mining industry often presents a key cornerstone for building up a digital asset industry in countries. By embracing the digital asset and Web3 industry, countries can diversify their economies, create new job opportunities, and develop expertise in cutting-edge technologies that will play a significant role in the future.

Let’s talk about the biggest challenge: Data-center unfriendly climate

Despite the Middle East's favorable conditions for Bitcoin mining, the region's harsh climate and dust accumulation pose challenges for mining operations. However, technological advancements such as dust-proofing solutions and immersion cooling systems have mitigated these concerns, enabling mining equipment to function optimally even in challenging environments. Dust-proofing solutions, such as sealed server racks, positive pressure systems, and air filtration systems, protect mining hardware from dust, reduce wear and tear, and maintain the efficiency of cooling systems. Immersion cooling technology submerges mining hardware in non-conductive liquids, dissipating heat more efficiently than traditional air-cooling systems, and increasing hardware longevity. By adopting these innovative technologies, Bitcoin mining operations can overcome the challenges posed by the Middle East's climate and unlock the region's full potential as a hub for the global mining industry.

Outlook: A significant portion of the global Hashrate might be in the Middle East

If the right incentives are provided, a significant portion of the global Bitcoin mining hashrate (i.e. the global computing power dedicated to the network) could come from the Middle East. Local champions can be born, that master not only integration with local utilities but also have proprietary knowledge of operating in the specific climate conditions and creating circular economy use cases.

Roland Berger is very well experienced with the entire life cycle of Bitcoin Mining industry, from strategy, business case to operational improvement, commercialization and investments. We have developed a proprietary framework allowing Bitcoin mining operators and invertors to make informed decisions. Next to specific business case and risk management frameworks, we also recently released our specific DD framework for the industry.

This article has been co-authored by Malik Naja.