A wave of investors looking to establish cryptocurrency mining facilities is expected to hit the commercial real estate market in 2022, but industry commentators say the property sector must be prepared in order to seize the opportunity.
Interest in cryptocurrency mining facilities has been building during the past six months, with China banning on-shore operations in June and a Senate committee chaired by Andrew Bragg reporting on the sector in October.
Commercial interest has also been proven, with NASDAQ-listed Mawson Infrastructure Group launching its first Australian operation, in Byron Bay in October, co-located with 20 megawatts of renewable energy.
Investors looking to dip their toes in the alternative asset class will be competing with data centre providers with a specific shopping list of requirements including a large footprint and access to cheap or renewable energy.
In the US, old industrial infrastructure has been repurposed for data mining operations.
Although on-market campaigns have yet to emerge, The Urban Developer has been told by multiple sources of foreign and domestic investors beginning to hunt.
“The reality is Australia could have already been doing these things, or people within Australia could have been doing them,” Blockchain Australia chief executive Steve Vallas says.
“But there was some reticence. There weren’t signals of support for this kind of initiative, or that this kind of infrastructure can live here.
“Now that those signals have been put in place in recent months, people are now looking at potential sites, potential investments—inbound and local—where they can quickly go through the process of getting appropriate planning permissions.
“A lot of people hadn’t otherwise given thought to the amount of time and effort that needs to go into locating sites. But suddenly there’s a rush on, so the uptick in the past three months has been pretty extraordinary.”
Cryptocurrency mining facilities resemble data centres in some ways, generally requiring good access to electricity and telecommunications networks. Operational differences, however, mean that mining sites may have different requirements.
“We’re starting to field calls about crypto mining,” says Matt Lee, senior director of industrial occupier services at JLL.
“It’s in its infancy in the sense of real estate, in terms of deals. Data centres—there’s a lot of deals you can point to and there’s a lot in the media.”
“At the highest overview level, they’re both high-power computing facilities, their DNA is the same. When you start to drill down into it a little further, there does become some separation between the two.
“You can’t just pick any old big block and stick a data centre on it. It doesn’t work that way. It has to be connected, it has to have power.”
Lee says that data centre operators are also more concerned with any potential disruptors in the vicinity, such as particulate-emitting heavy industry.
“[Crypto mining] is not established enough yet to say there’s trends, or anything other than to say it is going to be very high power. And it’s less location sensitive than the data centre space, it’s less critical,” he says.
While government friendliness towards cryptocurrencies is one factor in attracting crypto-mining investors, competition between and within countries is more likely to revolve around energy costs than tax regimes.
Treasurer Josh Frydenberg was broadly welcoming of Bragg’s report but dismissed the recommendation to provide a 10 per cent company tax discount for miners who pair with renewable energy.
“None of the businesses that I’ve spoken to, who have sought to invest in this space, are deterred by that,” Vallas says.
“I don’t think anyone had an expectation and that wasn’t driving the investment decision. The commercial decision is, ultimately, how cheaply can you get energy? How quickly can you get to market? And how quickly can you get hardware at scale?
“So it’s not people sitting and waiting for a tax policy and these incentives in order to move to the jurisdiction, it’s much more about the regulatory uncertainty that allows them to operate in the jurisdiction.”
Alongside attractive governance regimes, jurisdictions which appeal to cryptocurrency miners typically have cooler climates, which can reduce the costs of cooling hardware, and under-utilised renewable energy or natural gas assets.
Multiple sources have confirmed to The Urban Developer that miners are currently interested in Tasmania and Western Australia particularly.
Elsewhere, the US, Russia, and Central Asia have already benefitted from the exodus of miners from China. In the year to August 2021, the US share of bitcoin mining capacity surged from 5 per cent to 43 per cent.
However, associate professor Joseph Liu, director of the Blockchain Technology Centre at Monash University, warned that ESG concerns may see many cryptocurrencies shift to less energy-intensive models.
“People are migrating to using new technology, new mechanisms, that don’t require huge computational power,” Liu says.
“I think this is one of the major concerns of these mining farms.”
According to Liu, it’s almost impossible to repurpose mining equipment for data centres, potentially leaving mining facilities as stranded assets.
Blockchain sector leaders argue that the property sector needs to improve their understanding and acceptance of emerging blockchain technology beyond cryptocurrency mining facilities.
Liu points to improved construction supply chain visibility, as well as blockchain-based contracts facilitating settlement in multi-party transactions.
Industry and university partnership in the Building 4.0 Cooperative Research Centre at Monash University’s Caulfield campus is also finding new use cases and applications, but take-up is lagging technological innovation.
“There’s still a long way to go to further explain to [the construction and property sectors] what blockchain is, how blockchain can benefit them, and also how blockchain can overcome their challenges,” Liu says.
Vallas suggests that blockchain marketplaces will soon allow investors access to fractionalised real estate portfolios, enabling easier access and higher trading volumes.
“I think a lot of people in the property sector recognise that you have largely illiquid assets. If you tokenise them or fractionalise them, there’s potentially greater liquidity and all sorts of arbitrage opportunities and hedging opportunities that are created there.
“When it comes, it’ll be high-velocity trading, in what largely would have been traditionally illiquid assets.
“The reality here is people should educate themselves, there is no excuse now for missing the commercial opportunities and making an assessment as to what they are.
“The property sector as a whole … there will be arbitrage opportunities in the next year or two as this [marketplace] takes hold.”
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