Subsidized Energy Powers Argentine Crypto Mining Boom

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In Brief
  • Crypto miners in Argentina are taking advantage of the country’s subsidized electricity to reap outsized returns.

  • Besides favorable energy rates, Argentina’s struggling monetary policy incentivizes crypto adoption.

  • Foreign companies are not considering capitalizing on the favorable circumstances.

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Cryptocurrency miners in Argentina are taking advantage of the country’s subsidized electricity to reap outsized returns.

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This year, countries around the world have been experiencing crypto mining booms. Ultra-low utility rates and the resurgence of capital controls fuel the current one in Argentina. “Even after bitcoin’s (BTC) price correction, the cost of electricity for anyone mining from their house is still a fraction of the total revenue generated,” said Nicolas Bourbon, a digital currency miner from Buenos Aires.

Argentine economic woes

In the past few years, Argentina experienced cyclical economic crises. These include repeat currency devaluations, defaults, hyperinflation, and a three-year recession compounded by the coronavirus pandemic. This has made the environment fertile for the adoption of alternative payment methods, especially cryptocurrencies.

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To emphasize Argentina’s current economic plight, inflation of the country’s peso is also running at about 50% annually. The plunging value of Argentina’s native currency has led to the reintroduction of foreign exchange controls. While restricted from buying dollars, Argentines can also only buy $200-worth of any other currency. 

This has ostensibly given many of them much more incentive to migrate to digital currencies. One example of this surging local demand is bitcoin’s value at 5.9 million pesos ($62,316) in unofficial markets, versus about 3.4 million pesos ($35,911) at the official rate.

Argentina’s energy policy

Besides the greater incentive to acquire higher value-retaining assets, crypto enthusiasts also benefit from the country’s longstanding residential electricity subsidies. Despite the policy being favorable to voters, it has started fueling tension within the ruling left-wing Peronist coalition.

Lacking sufficient domestic energy resources, Argentina is a net importer of gas. Despite this, consumer electricity bills are only about 2% to 3% of an average monthly income. This amount is nearly double in other Latin American markets, like Brazil, Colombia, or Chile. 

“The crypto that miners generate is typically sold at the parallel exchange rate, but the energy is paid for at a subsidized rate,” according to Ezequiel Fernandez, an analyst at Balanz Capital Valores in Buenos Aires. “At the moment, revenues are very high.”

FDI potential

Due to the potential for outsized revenues, foreign mining firms are sensing opportunity. For instance, Canada’s Bitfarms secured a deal to tap directly into a local power plant. This will enable them to draw as much as 210 megawatts of natural gas-powered electricity for $0.022 per kilowatt-hour, which is far below the wholesale market rate.

This is around $0.06 per kilowatt-hour for industrial customers who lack a connection to the local grid. If successful, this could potentially become the largest bitcoin-mining facility in South America.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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