During China’s State Council meeting on May 21, Vice Premier Liu He called for a clampdown on cryptocurrency mining and trading, citing social and financial risks. His remarks prompted some domestic crypto mining companies to pull up stakes.

What China lost seems to be a gain for its neighbor to the west: Kazakhstan.

Several mine operators in Kazakhstan told Fortune that they have received an influx of inquiries from Chinese players looking to relocate. A week after the State Council announcement, founder of Kazakh mine provider Xive, DidarBekbauov, tweeted: “Chinese miners’ migration is real. Hashrate distribution is bullish,” implying that some of China’s crypto-mining power is being distributed to other countries, including Kazakhstan.

There are few—if any—hard examples yet of Chinese miners decamping for Kazakhstan, but John Lee Quigley, an independent crypto analyst, buys into the buzz. Kazakhstan will “likely receive a significant share of the [Chinese] hashrate that migrates,” he says. Quigley estimates Kazakhstan could pick up 10% to 20% of China’s output, but cautions that his is a ballpark figure based on anecdotal discussions.

China’s tightening grip on digital currencies is prompting Chinese-based mining outfits to consider setting up shop elsewhere, and nearby Kazakhstan is an attractive alternative.

Mining moves

For Chinese miners, Kazakhstan’s proximity makes it easier to move any mining equipment, facilities, and operations across the border. A large chunk of China’s Bitcoin mining—approximately 36%—takes place in its western province of Xinjiang, which abuts Kazakhstan.

“With the crackdown, Kazakhstan is a logical place for Chinese mining operations because it’s right next door and energy prices are low,” says Valery Vavilov, cofounder and CEO of Amsterdam-based Bitcoinblockchain firm Bitfury, which has a presence in Kazakhstan.

Cryptocurrency mining, the process of creating new coins through solving complex math problems, requires massive amounts of computational power. “Miners” thus look for hosting providers—operators of crypto-mining farms—who can offer low energy prices. Kazakh “hosts” charge competitive global rates given the country’s established power infrastructure, particularly its abundance of operational coal plants. It has a national energy surplus of approximately 3,000 megawatts; the average Kazakh Bitcoin farm consumes 48 megawatts of power.

These factors translate into electricity prices for crypto mining that are on par with rates in China, the U.S., and Russia.

Kazakh mining facilities can secure “extremely competitive electricity rates, with many operating between $0.03 and $0.033 per kWh,” said a December 2020 report by HASHR8, a crypto-mining research firm. It added that only 27.5% of the Bitcoin networkglobally has secured electricity rates at $0.04 per kWh or less. Mining hosts who have acquired their own power plants or electrical substations, such as Enegix, one of Kazakhstan’s largest mining facilities, can offer even lower prices.

The Kazakh government in April did make crypto mining a bit more expensive. It levied a 15% tariff on electricity providers, citing increased prices for coal and coal transport. The higher fees are intended to fund upgrades for the country’s power plants. The tariff did ding some domestic mining operators. Xive, for instance, raised its fees for clients from $0.042 to $0.046 per kWh. Still, analysts say, electricity prices remain low, and the tariff hasn’t yet seemed to deter crypto miners from doing business in Kazakhstan.

Quigley says there was a “spike in interest from Chinese miners looking to enter [Kazakhstan]” in May. Roman Zabuga, a spokesperson for Russian mining provider BitRiver, says he expects Chinese operators to sell more equipment to Kazakhstan and Russia with their home market increasingly off-limits.

Dmitry Ozersky, managing partner at Electro.Farm, which offers mine hosting services in Kazakhstan, says that his firm has received a lot of interest. Ozersky confirms that some of these farms will be relocating their operations to Kazakhstan, but he declined to provide names. Electro.Farm has 200 megawatts of mining farms under construction owing to the recent uptick in demand.

“Chinese miners have started reaching out to me for hosting services. Looks like a serious mining issue in China,” wrote Bekbauov on Twitter on May 24. Since late May, Xive has received three requests for 20- to 50-megawatt farms. The company currently operates three mining farms in Kazakhstan, with four additional facilities in the works.

Kazakh frontier

Kazakhstan also maintains its mining allure as a result of state support for the “digital asset” sector.

The main disadvantage for Chinese miners is the “legal uncertainty surrounding their activity [in China],” Quigley says. Meanwhile, Kazakhstan’s stance is clear: The government passed a law last June that permits digital mining. In September 2020, digital development minister BagdatMussin announced a three-year plan to attract $714 million in crypto-mining investment.

Cryptocurrency mining firms can apply for special tax status for IT companies that taxes 1% of total revenue versus Kazakstan’s corporate tax rate of 20%. Mining operators can also obtain import tax exemptions on imported hardware. For instance, Kazakh operators can “commit to the hardware…[ensuring it stays] on the company’s balance sheet for five years,” noted HASHR8.

Such conditions are appealing to crypto miners globally. Xive says the majority of its clients are now from China, but it also has a large contingent of Japanese, South Korean, and European clientele. Electro.Farm’s clients hail from South Korea, Germany, France, and Russia.

Despite all of Kazakhstan’s advantages as a mining locale, it’s facing greater competition from both up-and-coming and established hubs.

Baltic and Nordic countries, while still small players, have been able to tout their clean energy credentials as the carbon footprint of crypto mining—Bitcoin especially—faces a backlash. Over 70% of Kazakhstan’s electricity supply is coal-powered, meaning the majority of crypto “farms” are powered by fossil fuels. Hydropower facilities in Kazakhstan are often state-owned and cost more to operate, HASHR8 said.

But Kazakhstan’s main competitor is North America. The U.S., in particular, also offers an abundance of cheap energy, coupled with stable economic conditions and a more robust rule of law that bolsters investor confidence. The U.S. “offers a legal framework that the Western world is comfortable with. [It’s] attractive to those that want to establish multi-decade-long operations," says Quigley.

While miners are increasingly looking toward Kazakhstan, it seems the country has a long way to go before its share of the global hashrate can catch up to that of China and the U.S.