Argentina's cheap subsidized energy prompts residents to turn to Bitcoin mining

On May 31, Bloomberg reported that amid economic uncertainty and the government's massive electricity subsidies, more and more Argentine residents are turning to Bitcoin mining.

Cryptocurrencies have long been touted in Argentina as a way for locals to hedge against periodic economic crises, including repeated currency devaluations, defaults, hyperinflation and now a three-year recession made worse by the pandemic. In addition to cheap electricity, the return of foreign exchange controls in recent years has barred Argentines from buying dollars, giving them more incentive to mine digital tokens.

Miners are benefiting from the country’s long-standing residential electricity subsidies, a policy designed to win political support from voters. Although Argentina is a net importer of natural gas, consumers pay just 2% to 3% of average monthly income for electricity, while other Latin American markets such as Brazil, Colombia or Chile pay about twice as much, said analyst Ezequiel Fernandez.

While many countries have experienced a crypto mining boom this year, ultra-low utility rates and the resurgence of capital controls are helping miners in the South American country increase profits. Even after the Bitcoin price correction, anyone mining at their own premises will still only pay a small fraction of the total revenue generated from mining.

In fact, over the past few months, more than 1 million Argentines have been buying cryptocurrencies, most of whom are buying Bitcoin and stablecoins such as USDT, USDC, and DAI, according to local media Ámbito. The media also emphasized that stablecoins have begun to gain momentum in 2019 due to the dollar purchase cap implemented in Argentina. Users believe that such tokens are a more efficient way to convert Argentine pesos into dollars. In addition, Ethereum's adoption rate is also increasing in the country.

In addition, cryptocurrency adoption is rising across South America, with Argentines having opened at least 2 million cryptocurrency trading accounts. However, according to Infobae, “many industry sources” say Argentines have been increasing their cryptocurrency purchases in recent months. But the media noted that experts agree that the market is in an “experimental phase” and that “2 million accounts does not equal 2 million active customers.”

It is worth mentioning that Canadian listed mining company Bitfarms has signed a power purchase agreement with a utility-level private power generator in Argentina to operate the largest Bitcoin mining facility in the south. Under the agreement, Bitfarms has the right to use up to 210 megawatts of electricity at its own discretion. The initial term of the contract is eight years, and in the first four years, the effective cost of electricity is $0.022 per kilowatt-hour.

"We're looking at places where there's overbuilt generation systems, where economic activity is down in Argentina, and where the power is not being fully utilized," Bitfarms President Geoffrey Morphy said in an interview. "So it's a win-win situation."

However, no matter how Bitcoin fluctuates in the coming months, as long as the government pays at least part of the electricity bill, mining in Argentina will almost certainly be profitable for individuals. (Golden Finance)