Bhutan’s big bet on Bitcoin: Sovereign crypto strategy done right?

Bhutan, a small kingdom in the Eastern Himalayas, is known for its stunning landscapes, deep-rooted Buddhist traditions and focus on Gross National Happiness (GNH). While the country has been careful with modernisation, six years ago, it made a surprising move into cryptocurrency.

The country began mining Bitcoins in April 2019, the country's sovereign investment arm, Druk Holding & Investments (DHI), confirmed to local newspaper The Bhutanese. At the time, the cryptocurrency was valued at around $5,000 per Bitcoin.

Since 2007, DHI has been working to diversify the country's economy and saw digital assets as a growth opportunity. 

Bhutan mines Bitcoins using its vast hydropower resources, treating the cryptocurrency like gold or property. This approach supports Bhutan's focus on sustainable development, as hydropower provides a renewable energy source for crypto mining.

As of 16 September 2024, Bhutan's Bitcoin holdings stood at $750 million, making it the fourth-largest government holder on Arkham's platform. This positions Bhutan as a notable player in the global cryptocurrency market, despite its small population of under 800,000. It accounted for 27.9% of Bhutan's estimated 2023 GDP of $2.69 billion. 

By November 2024, its Bitcoin holdings had grown to $1.1 billion, surpassing a third of the country's GDP. This increase was driven not only by Bitcoin's rising price but also by Bhutan's proactive strategy to expand its crypto holdings, reflecting a strong commitment to digital assets.

Bhutan's use of hydropower for Bitcoin mining serves two purposes. 

In summer, melting Himalayan glaciers create excess hydroelectric power, which is then used for mining. The Bitcoins mined act as a "battery", storing value to help manage energy needs during the dry winter months when power generation drops. This strategy makes the most of renewable energy while also providing a safeguard against seasonal energy shortages.

Furthermore, Bhutan's move into cryptocurrency comes at a crucial time for its economy. The Covid-19 pandemic hit the tourism sector hard, reducing national revenue. At the same time, youth unemployment has risen, pushing many to seek jobs abroad. By investing in crypto, Bhutan hopes to diversify its economy, generate new income, and create job opportunities in the growing digital sector.

However, Bhutan's crypto aspirations are not without controversy. Cryptocurrency prices are highly volatile, and sharp declines could impact the country's economy, given its large Bitcoin holdings. A market crash could significantly affect national assets, which raises concerns about financial stability. To avoid such setbacks, the government needs strong risk management strategies.

Although Bhutan's Bitcoin mining is powered by renewable energy, the environmental impact of crypto mining is still debated globally. While Bhutan's hydropower is cleaner than coal-powered mining in other countries, large-scale Bitcoin mining still requires significant infrastructure and maintenance. There are concerns about whether Bhutan's reliance on hydropower for mining could affect its ability to meet domestic energy needs in the future.

Another important factor is navigating the global regulatory environment. Cryptocurrency regulations differ across countries, and Bhutan must manage complex international policies to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) rules. 

Despite the challenges, Bhutan's crypto strategy shows how digital assets can offer economic opportunities for smaller nations. Many developing countries face limited access to traditional financial markets and foreign investment. Bhutan's approach highlights how digital currencies can create new revenue streams, helping to reduce reliance on traditional sectors like agriculture and tourism.

Bhutan's success in crypto mining could inspire other nations with abundant renewable energy resources. By using clean energy to power blockchain networks, countries can tap into the growing digital economy while staying committed to sustainable development goals. This approach could help diversify economies in regions where traditional industries struggle to compete globally.

Bhutan's entry into the crypto market marks a shift in how small nations can engage in the digital economy. Traditionally, financial markets have been controlled by large economies with established banking systems. 

However, decentralised finance (DeFi) and blockchain technology are changing the power dynamics. Bhutan's investment in digital assets shows how emerging economies can use technology to join global financial networks without depending on traditional banking intermediaries.

A key part of Bhutan's strategy is using its crypto reserves to fund future development projects. If managed well, the profits from Bitcoin mining and trading could be reinvested in infrastructure, education, and healthcare. This approach could bring long-term benefits to Bhutanese citizens, turning the nation's digital wealth into real improvements in quality of life.

Bhutan's approach to cryptocurrency fits into its broader vision of digital transformation. The country has been slowly integrating blockchain technology across different sectors, from public administration to financial services. 

By including digital assets in its economic planning, Bhutan shows its openness to innovation while staying focused on preserving its cultural and environmental values.