Bloomberg news on May 31 pointed out that in the context of economic uncertainty and the government’s large amount of electricity subsidies, more and more Argentine residents are turning to Bitcoin mining.
Cryptocurrency has long been touted in Argentina as a way for locals to hedge against cyclical economic crises, including repeated currency devaluations, defaults, and hyperinflation. Now, the pandemic has made the three-year recession worse. In addition to cheap electricity, the return of foreign exchange controls in recent years has made Argentines banned from buying U.S. 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. Analyst Ezequiel Fernandez said that although Argentina is a net importer of natural gas, consumer electricity bills account for only 2% to 3% of average monthly income, while electricity bills in other Latin American markets such as Brazil, Colombia or Chile are about twice that.
Although many countries have experienced a boom in crypto mining this year, the recovery of ultra-low utility rates and capital controls are helping miners in this South American country increase their profits. Even after the Bitcoin price correction, anyone who digs in their own house will still have electricity bills that are only a small part of the total income generated by the mining.
In fact, in the past few months, more than 1 million Argentines have been buying cryptocurrencies. According to local media Ámbito, most of them are buying Bitcoin and stablecoins such as USDT, USDC and DAI. The media also emphasized that stablecoins have begun to build momentum in 2019 due to the U.S. dollar purchase limit imposed by Argentina. Users believe that this type of token is a more effective way to convert Argentine pesos into U.S. dollars. In addition, the adoption rate of Ethereum in the country is also increasing.
In addition, the adoption rate of cryptocurrency across South America is rising, and Argentines have opened at least 2 million cryptocurrency trading accounts. However, according to Infobae, “many industry sources” stated that Argentines have been increasing their cryptocurrency purchases in recent months. However, the media pointed out that experts agreed that the market is in an “experimental stage” and that “2 million accounts does not equal 2 million active customers.”
It is worth mentioning that Bitfarms, a listed Canadian mining company, signed a power purchase agreement with a utility-level private generator in Argentina to operate the largest bitcoin mining facility in the south. According to the agreement, Bitfarms has the right to use up to 210 megawatts of electricity at its discretion. The initial term of the contract is eight years. During the first four years, the effective cost of electricity is $0.022 per kilowatt hour.
Geoffrey Morphy, President of Bitfarms
, said in an interview that we are looking for places to overbuild power generation systems. Argentina’s economic activity has declined and electricity has not been fully utilized. So this is a win-win situation.
However, regardless of Bitcoin’s volatility in the coming months, as long as the government pays at least part of the electricity bill, Argentina’s mining industry will almost certainly bring profits to individuals.