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Subsidized electricity rates makes crypto mining cheaper in Argentina

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Despite the economy of Argentina not doing well, there’s three times the inflation-thanks to the pandemic, yet the mining activities for the miner prove to be profitable. This is because the government is providing subsidized residential electricity to the people. 

Miners in Argentina are enjoying the reduced rates of electricity as during mining the electricity is used the most. The miners are capitalizing on the inefficiency of the country’s interventionist economy. They are reaping benefits, fueled by memories of currency busts and powered by government-subsidized electricity. 

In the year 2021, there has been a boom in crypto mining with very low utility rates and the resurgence of capital controls are helping the miners with outstanding profits in the South American nation. Argentina’s government-subsidized electricity has proved to be an advantage for the miners in the country. The miners have set one of the best examples for other miners outside the country. 

Nicholas Bourbon, from Buenos Aires, said that even after the bitcoin prices are corrected, the cost of electricity was not reduced much. It was still a fraction of the total revenue generated. 

Boosting cryptocurrency from long

Argentina has been boosting cryptocurrency for a very long time. It is a way for the locals to make money against the economic crises, currency devaluations, defaults, hyperinflation, and now a three-year recession made worse by the pandemic. The country does not only have cheap electricity, the return of foreign exchange control in recent years have banned dollars for Argentines, which is an incentive to mine digital tokens. 

Since the demand for non-peso assets is on a surge, the value of bitcoin is also increasing to almost $5.9 million pesos in unofficial markets, which is just $3.4 million pesos at the official rate.

Benefits in return

Miners are benefitting from subsidized rates of residential electricity. This is because the political policy to win the votes is giving a benefit in return to the miners. This is again fueling the tension within the ruling left-wing Peronist Coalition. 

Even though Argentina is an importer of gas, yet the rates of consumer electricity bills are only about 2% to 3% of an average monthly income. It is twice that in other Latin American markets like Brazil, Colombia or Chile. 

The country is witnessing annual inflation at the rate of 50% and since there are restrictions on the currency, the individual can only convert $200 per month legally. The demand for any store of value leads to a decrease in the value of the Peso in parallel markets, where it is 70% weaker than the official rate. 

The crypto miners’ assets are usually sold at the parallel exchange rate. However, the energy is paid for at a subsidized rate. 

Win-win for International firms

With the government offering subsidized rates, some international mining firms see the opportunity in Argentina. Bitfarms Ltd., a bitcoin mining firm in Canada had signed a deal to tap directly into the local power plant to make as much as 210 megawatts of natural gas-powered electricity. This will be the largest bitcoin mining facility in South America. 

Geoffrey Morphy, President, Bitfarms Ltd. said that the company is looking for places that have built their electrical generation system. Since Argentina’s economic situation is not good and that the electricity rate is subsidized, the company has seen a lot of potentials here for mining activity. Geoffrey believes that the power is not fully utilised in Argentina. So it is a win-win situation for the company. 

The company is paying half of the electricity which is far below the wholesale market rate of around $0.06 per kilowatt-hour for industrial customers not connected to the local grid. 

Despite the prices of bitcoin continuing to show volatility, mining in Argentina will certainly remain profitable for individuals till the time the government is keeping the subsidized rate of the electricity. 

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