Tech
Cryptocurrency mining is booming thanks to cheap, subsidized energy in Argentina
As several countries have seen a boom in cryptocurrency mining this year, ultra-low user fees and a resurgence of capital controls are helping to supercharge miners’ profits in the South American nation. For many experts, it’s another example of Argentina’s perennial ability to bend the nation’s unorthodox policies to their advantage.
“Even after the Bitcoin price correction, the cost of electricity for someone mining from home is still a fraction of the total revenue generated,” said Nicolas Bourbon, who has experience mining digital currencies in Buenos Aires.
Cryptocurrencies have long been touted in Argentina as a way for locals to hedge against cyclical economic crises, including repeated currency devaluations, defaults, hyperinflation and now a three-year recession exacerbated by the pandemic. In addition to cheap energy, the return of exchange controls in recent years has given Argentines who were banned from buying dollars an even greater incentive to mine digital tokens, as growing demand for non-peso assets sent bitcoin’s value skyrocketing to nearly 5.9 million pesos on unofficial markets on Sunday, up from about 3.4 million pesos at the official exchange rate.
Miners are benefiting from the country’s long-standing residential electricity subsidies, a policy designed to garner political traction among voters but which is increasingly fueling tensions within the ruling leftist Peronist coalition.
Despite Argentina being a net importer of gas, electricity bills for consumers amount to only 2-3% of average monthly income, compared to about double that in other Latin American markets such as Brazil, Colombia or Chile, according to Ezequiel Fernandez, an analyst at Balanz Capital Valores in Buenos Aires.
Moreover, with inflation hovering around 50% annually and a currency restriction that allows individuals to legally convert only $200 a month, rampant demand for any store of value is fueling a collapse of the peso in parallel markets, where it is now about 70% weaker than the official exchange rate.
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“The cryptocurrency mined by miners is usually sold at a parallel exchange rate, but the energy is paid for at a subsidized rate,” Bourbon said. “The revenue is very high right now.”
International mining firms are sensing the opportunity. Last month, Canada’s Bitfarms Ltd. said it had secured a deal to tap directly into a local power plant to generate up to 210 megawatts of natural gas-fired electricity in a bid to operate what would be the largest Bitcoin mining facility in South America.
“We were looking for places that had overbuilt their electricity generation systems,” Bitfarms Chairman Geoffrey Morphy said in an interview. “There’s a decline in economic activity in Argentina, and energy is not being fully utilized. So it was a win-win situation.”
To be sure, industrial power demand isn’t entirely covered by subsidies. But the 0.022 cents per kilowatt-hour price Bitfarms says it’s paying for electricity is well below the wholesale market rate of about $0.06 per kilowatt-hour for off-grid industrial customers, according to Balanz Capital’s Fernandez.
“For some energy producers with easy access to gas, selling excess energy to Bitcoin miners for part of the year makes sense, especially if the energy producer somehow avoids exchange controls by getting paid in hard dollars outside Argentina or in Bitcoin,” Fernandez said.
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A spokesman for Argentina’s energy ministry declined to comment on the deal, as did a spokesman for Argentina’s tax agency.
Regardless of Bitcoin’s volatility in the coming months, mining in Argentina will almost certainly continue to be profitable for individuals, as long as the government pays at least part of the electricity bill.
“The miners know the subsidies are ridiculous,” Bourbon said. “They just take advantage of it.”
By Scott Squires