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Cryptocurrency mining boom with cheap and subsidized energy in Argentina

Bitcoin miners in Argentina, backed by the memory of the currency bust, are using government-sponsored electricity to take advantage of the inefficiencies of the country’s interventionist economy to make large profits. I will.

Many countries have experienced a crypto mining boom this year, but ultra-low utility rates and the resurgence of capital regulations have helped to overwhelm the interests of miners in South American countries. For many experts, it is yet another example of Argentina’s lasting ability to bend national pagan policies for their benefit.

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“Even after the Bitcoin price adjustment, the electricity bill for those who mine from home is only a small part of the total income generated,” said Nicholas Bourbon, who has mined digital currencies from Buenos Aires.

Cryptocurrencies have long been trumpeted as a way for locals to hedge against cyclical economic crises, including repeated devaluations, defaults and hyperinflation, and now the three-year recession has been exacerbated by a pandemic. .. In addition to cheap electricity, the recent resurgence of foreign exchange control has further banned the purchase of dollars to mine digital tokens. This is because the value of Bitcoin has skyrocketed to about 5.9 million due to the surge in demand for assets other than the peso. Informal market pesos as of Sunday, about 3.4 million pesos at official rates.

Miners have benefited from the country’s many years of residential electricity subsidies. This is a policy aimed at gaining political points with voters, but it is increasing tensions within the ruling left-wing peronist coalition.

According to analyst Ezequiel Fernandez, despite Argentina being a net importer of gas, consumers’ electricity bills account for about 2% to 3% of their average monthly income, including Brazil, Colombia and Chile. It is about twice as large as the Latin American market. At Balant’s Capital Barores in Buenos Aires.

In addition, inflation is around 50% per year, and currency restrictions allow individuals to legally convert just $ 200 a month. The surge in demand for valuable stores has plunged the parallel market peso, which is now about 70% weaker. Official rate.

“The ciphers generated by miners are usually sold at parallel exchange rates, but energy is paid at subsidized rates,” Bourbon said. “At this point, the revenue is very high.”

International mining companies are seeing opportunities. Last month, Canada’s Bitfarms Ltd. signed a contract to use a local power plant directly to draw 210 megawatts of natural gas-powered electricity to operate the largest Bitcoin mining facility in South America. Was announced. America.

“We were looking for a place to overbuild our power generation system,” Bitfarm President Jeffrey Morphy said in an interview. “Argentina’s economic activity is depressed and electricity is underutilized, so it was a mutually beneficial situation.”

To be sure, industrial electricity demand is not completely covered by subsidies. However, according to Fernandez of Balants Capital, the price of 0.022 cents per kilowatt hour that Bitfarm pays for electricity is well below the wholesale market price of about $ 0.06 per kilowatt hour for industrial customers who are not connected to the local grid. I am.

“For certain generators with easy access to gas, especially if the generators circumvent foreign exchange controls outside Argentina or by paying in hard dollars in Bitcoin, Bitcoin miners will be part of the year. It makes sense to sell surplus electricity to others, “Fernandez said.

A spokesman for the Argentine Ministry of Energy, like a spokesman for the Argentine tax authorities, refused to comment on the deal.

Regardless of Bitcoin’s volatility in the coming months, Argentine mining will almost certainly remain profitable for individuals as long as the government bears at least a portion of its electricity bill.

“The miners know that subsidies are ridiculous,” Bourbon said. “They just take advantage of it.”

© 2021 Bloomberg

Cryptocurrency mining boom with cheap and subsidized energy in Argentina

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