Subsidized Energy in Argentina Opens a New Mining Frontier
Bitcoin mining require cheap energy and it looks like miners are heading to Argentina to capitalize on the inefficiencies of the country’s interventionist economy and government-subsidized electricity. We have seen a variety of stories talking about mining form Iran banning it to the US looking to bring miners stater side. However, Argentina's ultra-low utility rates and the resurgence of capital controls are helping supercharge profits for miners in the South American nation.
For many experts, it’s yet another example of Argentines’ perennial ability to bend the nation’s heterodox policies to their advantage. “Even after Bitcoin’s price correction, the cost of electricity for anyone mining from their house is still a fraction of the total revenue generated,” said Nicolas Bourbon, who has experience mining digital currencies from Buenos Aires. source
Cryptocurrencies have a pretty long history in Argentina as they have long been used by locals to hedge against cyclical economic crises, including repeat currency devaluations, hyper inflation and defaults. The advantages of mining in the area combined with the return of foreign-exchange controls in recent years have given Argentines banned from buying dollars even more incentive to mine digital tokens to get around their failing native fiat.
It's easy to see why miners are setting up shop as longstanding residential electricity subsidies. Despite Argentina being a net importer of gas, consumer electricity bills are only about 2% to 3% of an average monthly income, compared to about twice that in other Latin American markets like Brazil, Colombia or Chile. Combined with inflation running at about 50% annually and currency restriction permitting individuals to legally convert just $200 per month, rampant demand for any store of value. I'm a believer in bitcoin's ability to store value even with the current volatility. The circumstances playing out here are a real use case for mining and BTC that's widely overlooked...
International mining firms are sensing opportunity which I can not fault them. Last month, Canada’s Bitfarms Ltd. said it secured a deal to tap directly into a local power plant to draw as much as 210 megawatts of natural gas-powered electricity!
“We were looking for places that have overbuilt their electrical generation systems,” Bitfarms President Geoffrey Morphy said in an interview. “Economic activity in Argentina is down, and power is not being fully utilized. So it was a win-win situation.” source
The $0.022 cents per kilowatt hour price Bitfarms says it will pay for the electricity is far below the wholesale market rate of around $0.06 per kilowatt hour.
“For certain power generators with easy access to gas, selling excess power to Bitcoin miners during part of the year makes sense, especially if the power generator somehow avoids foreign-exchange controls by getting paid in hard dollars outside of Argentina, or in Bitcoin,” Fernandez said. source
As this news starts to break I think we will see government officials making cases to ban crypto if the public starts to get involved as a way to get around their fiat. If it stays isolated to foreign miners I think they will be able to through their power around to make sure regulations favor miners. In a place like Argentina it feels like the wild west so I'll be interested to see how all this plays out.
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