Bitcoin mining (BTC) in Argentina has become a very attractive option amid the deteriorating economy and high inflation. In addition, the interventionist policy of the Argentine government of Alberto Fernández, especially during the pandemic, indirectly subsidized the activity by lowering electricity prices in the country. Now, the neighboring country is on the way to becoming the largest cryptocurrency miner in all of Latin America.
Experts who spoke with the Bloomberg they believe that miners are benefiting from government subsidies to increase their production capacity. Even with bitcoin at a low, the cost of electricity with potential gains is still very advantageous, especially given the collapsing Argentine peso.
For Nicolas Bourbon, an expert on cryptocurrency mining from Buenos Aires, this recent phenomenon reflects the ability of Argentines to bend government policies in their favor. “Even after correcting the bitcoin price, the cost of electricity for those mining their home is still a small fraction of the total revenue generated,” he said.
Cryptocurrencies help to avoid undervalued peso
Cryptocurrencies have been a growing topic in Argentina in recent years. With the aggravation of inflation still under the Macri government, the Argentines who had financial conditions converted their pesos to dollars. However, this situation generated another problem in the country. The national foreign currency reserve began to become scarce, further threatening financial stability, which led to more drastic decisions.
In the second half of 2020, Argentines found themselves with a monthly purchase quota of up to US$ 200 imposed per individual. This restriction also includes spending on international credit cards, for example. The mass sale of pesos further damaged its price and the extremely high demand for the American currency aggravated inflation which, according to the most recent data, is around 4% a month, accumulating more than 46% last year.
It was at that moment that cryptocurrencies caught the eye. Due to its decentralized nature and deflationary trend, the demand that previously turned to the dollar was mainly directed to bitcoin (BTC) and ether (ETH) as stores of value after the population suffered from three years of recession. The economic situation only worsened during the COVID-19 pandemic and defaults and bankruptcies became common.
Bitcoin mining becomes very profitable in the country
Cryptocurrency mining thus became a very attractive alternative to generate income. Demand for bitcoins, for example, has grown dramatically in recent months, even creating a parallel market for trading digital currencies off regulated exchanges, operating at inflated prices. While the official conversion of 1 BTC to Argentine pesos is around 3.4 million, the asset was traded for almost 6 million on the unofficial exchange rate last Sunday (30), according to the Bloomberg.
Ezequiel Fernandez, an analyst at Balanz Capital Valores in Buenos Aires, said that as much as the country is an importer of fuels to generate electricity, the bills that reach consumers generally reflect only 2% or 3% of their average monthly income. . As a comparison, this percentage in Brazil, Colombia and Chile is at least twice as high. “The cryptocurrencies that miners generate are normally sold at parallel exchange rates, but the energy is paid for at a subsidized rate,” said Bourbon. “At the moment, the revenues generated are very high”. In this way, Argentina is becoming a very profitable hub for digital asset mining.
Opportunity arouses the interest of foreign companies
Companies dedicated to the activity are already realizing the business opportunity. Last month, Canadian Bitfarms said it had struck a deal to directly access a local power plant to extract up to 210 megawatts of electricity powered by natural gas. Once completed, the operation could create the largest bitcoin mining facility in all of South America.
“We were looking for locations that don’t use all of their electricity generation systems,” Bitfarms President Geoffrey Morphy said in an interview with Bloomberg. “Economic activity in Argentina is low and energy is not being fully utilized. Therefore, it is a win-win situation for both parties.”
However, government subsidies are not so broad for the industrial sector that Bitfarms fits. Even so, the price of $0.022 per kilowatt-hour the company says it will pay for Argentine electricity is far below the average market rate of $0.06 per kilowatt-hour, according to Fernandez de Balanz Capital.
“For certain energy companies with easy access to gas, selling surplus electricity to bitcoin miners for part of the year makes sense, especially if they somehow avoid exchange controls by receiving in dollars outside Argentina, or even in bitcoin”, he concluded.
With information: Bloomberg