In a statement Monday (Feb 21), the rating agency said the increase in global demand for cryptocurrencies in 2021 and highly profitable crypto mining have created ecosystems that already consume an estimated 0.4%–1% of global electricity.
However, it said a greater level of crypto market regulatory oversight, including mining methods and related energy consumption, is likely in most jurisdictions in the longer term, limiting risks to energy utilities.
Fitch Ratings said mining of cryptocurrencies such as Bitcoin is often reliant on makeshift data centres or “mining farms” that are unregulated, as are most decentralised markets they serve.
It said electricity represents up to 90% of crypto mining costs, and therefore the sector is sensitive to electricity prices and its farms are often located close to low-cost energy, particularly where electricity prices are state-subsided.
The agency said that although mining of many cryptocurrencies has advanced from its initial desktop set-up and now requires specialised equipment worth thousands of dollars per farm, such operations are still fairly quick to establish or relocate.
It said this was demonstrated by the mining exodus from China after it banned cryptocurrencies in 2021 (the country accounted for two-thirds of global bitcoin mining in 2020), to places such as Russia, Kazakhstan, Canada and the US.
It said in some locations, new farms have reportedly caused instances of energy networks being overloaded and supply outages.
Fitch Ratings said Bitcoin (whose share in crypto assets is about 40%) is still the largest global cryptocurrency, but the digital assets market has experienced rapid growth, particularly in 2021, becoming more diverse with larger energy needs.
It said Bitcoin’s annualised power demand alone is estimated at 125 terawatt-hour by the Cambridge Centre for Alternative Finance, which is comparable to the electricity consumption of countries such as Norway and Sweden.
Fitch Ratings said information on many other cryptocurrencies’ electricity needs and carbon footprint is sparse.
Source: theedgemarkets.com