As China’s Crackdown on Crypto Mining Continues, Cheap Electricity Pushes Miners to Argentina

As China’s Crackdown on Crypto Mining Continues, Cheap Electricity Pushes Miners to Argentina

Argentina is becoming the next hub of bitcoin mining, thanks to subsidized electricity. The South American country, plagued by economic misfortune, is seeing bitcoin as a way out of unemployment and economic turmoil.

The shift comes at the heels of China’s crackdown on bitcoin miners, which has compounded the crash of the cryptocurrency market.

Ezequiel Fernandez, an analyst at Balanz Capital Valores in Buenos Aires said that although Argentina is a net importer of gas, consumer electricity bills are only about 2 percent to 3 percent of an average monthly income, compared to about twice that in other Latin American markets like Brazil, Colombia or Chile.

The cheap electricity is thus offering a lifeline to Chinese miners who have been forced to shut down. International mining firms are also seeing opportunities in Argentina. SCMP reported that last month, Canada’s Bitfarms 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, in a bid to run what would be the largest bitcoin-mining facility in South America.

“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.”

Argentina has been battling to stay afloat amidst cyclical economic crises, including repeat currency devaluations, defaults, hyperinflation, and now, a three-year recession aggravated by the pandemic.

To cushion the harsh economic realities it brings on the people, the government subsidizes electricity. Industrial customers not connected to the local grid pay as low as $0.06 per kilowatt hour, a mouthwatering deal that many firms outside South America are now seeking to be part of.

“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.

But some of the crypto miners want a cheaper deal. Bitfarm said it wants a deal of $0.022 cents per kilowatt hour, below the wholesale market rate.

“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.”

Less industrial activities in Argentina means more electricity will be available for consumption. Heavy economic activities in China pushed early attempts by the government to wrestle power consumption back to normal from bitcoin miners before the crackdown.

“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.

As China zealously escalates its crackdown on bitcoin mining, disrupting the pool that was for years a pillar of the cryptocurrency market, affected miners are exploring their choices which lie with countries with cheap electricity similar to China.

The Southeast Asian country boasts of cheap electricity powered by coal, but industrialization has put consumption on high, limiting how much the government can tolerate for crypto miners.

For Argentina, it opens the gateway to economic sustenance that the government can’t provide. The value of bitcoin in Argentina has been on the rise to almost 5.9 million pesos in unofficial markets as of Sunday, versus about 3.4 million pesos at the official rate, paving way for higher returns when the cryptocurrency market bounces back.

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