Argentina Bears Down on Crypto Miners Amid Power Shortage

BitPatagonia, one of the largest registered crypto mining companies in Argentina, was recently hit with a 400% increase in its electricity bill, the result of a policy change affecting miners there, the startup’s industrial director, Pablo Holmes, told CoinDesk.

BitPatagonia’s mine is in Tierra del Fuego on Argentina’s southernmost tip, where the cold climate supports up to 22 crypto mining companies, local sources told CoinDesk. But the government isn’t happy about the consumption of energy by mining companies. So in January, it imposed a 170% increase in the wholesale electricity rate of Tierra del Fuego, targeting digital asset miners specifically.

Argentina’s government, alerted by the growing crypto mining activity, began an investigation in December to identify mining companies and measure their energy consumption. The goal, it said at the time, was for the miners to “face the payment of the price of energy equivalent to the cost of supply, being inequitable that they pay the price of a residential user.”

Argentina’s government pays big subsidies to different entities that provide electricity and gas, ultimately reducing the final rate for taxpayers. In February, the budget for energy subsidies increased by 207% compared with the same month of 2021, according to a report published by the Argentine Association of Budget and Public Financial Administration.

The country, at the same time, is also running out of U.S. dollars to continue importing energy, as its reserves averaged $38.5 billion in March, according to Argentina's Central Bank. Net reserves are $1.65 billion, and liquid reserves are minus $1.9 billion, local investment firm Allaria reported recently.

Electricity subsidies are a great opportunity for miners taking advantage of residential rates, but not for registered mining companies, which have to pay industrial rates.

Moreover, Holmes added, the control measures taken by the government don't encourage companies and residents mining crypto off the radar of the tax collection agency, AFIP, to register with the government.

“Nobody is going to say that he is illegally mining in industrial parks, offices or homes just because he receives a letter from a public office. It is like responding to a letter from the central bank asking if your address works as a cave [an illegal exchange house] for buying and selling dollars. However, we understand that the officials are making their best efforts,” he added.

Moisés Sorloza, Tierra del Fuego’s Energy Secretary, recently said that the province’s government has gathered data from registered farms, but he also acknowledged there are “micro miners” working in homes that still need to be regulated nationwide.

He added that because of its “obsolete” electric system, Tierra del Fuego has “no way it can sustain the increase of high-energy consumption enterprises.”

Due to rate increases and what he calls unfair competition between registered and illegal miners, BitPatagonia is considering leaving Argentina to set up operations in other countries, Holmes said, without specifying a destination.

Santiago Miranda, CEO of CriptoLab, a crypto mining company registered in the central province of Córdoba, said the company pays the full electricity rate but that mining is still “very profitable.”

When talking about illegal mining and regulatory attempts, however, he warned that “no one is going to provide information unless there is some benefit for the taxpayer.” CriptoLab is working with different provincial governments to create a “friendly framework that is not only for collection.”

Low prices, high costs

According to the Argentina-based data-checking organization Chequeado, a 300 kilowatt-hour (kWh) monthly residential bill costs $5 in Buenos Aires, but averages $30 in the U.S.

That difference attracts many Argentines to turn to crypto mining and earn income in a foreign currency, amid constant devaluations of Argentina’s peso and inflation that exceeds 55%.

Without being registered as official miners, Manuel and Pedro – who requested their full names be withheld to remain anonymous – are friends and businessmen who five months ago invested $16,000 to mine ether in the center of Buenos Aires, Argentina’s capital.

“With one day of mining, we cover the surplus we receive in the monthly electricity rate for the activity,” they said, detailing that they receive an income of $30 per day.

Regarding the potential taxes or energy restrictions, the miners said that they aren't too concerned because “regulations will run behind technology, which is always one step ahead.”

Manuel and Pedro plan to recover their investment in 15 months. Although so far they have kept their earnings on crypto, eventually they plan to convert to fiat in one of the illegal exchange offices known as “caves” that trade at the unofficial U.S. dollar rate and are usually hidden behind traditional businesses, such as jewelry stores.

Lucía, who requested that her last name be withheld, started mining in January and found an alarming increase in her electricity rate. Despite the subsidies, the cost tripled from $8 to $25.

“When I received the electricity bill, I was worried. But I am confident in the long-term investment,” she told CoinDesk. After choosing to mine ether, she now plans to recover her initial investment of $4,800 in eight months.

Lucía, Manuel and Pedro raised concerns regarding the change in the ether protocol, but still hope to recover their initial investments before Eth 2.0 comes into play.

A mainstream niche

Home crypto mining has become so common in Argentina that even mining influencers have appeared, explaining to novices how to acquire machinery and make the necessary investments.

Valeria Frías has more than 12,000 followers on Instagram and receives inquiries daily. In her spare time, she assembles, configures and sells processing equipment for crypto mining.

Frías made an initial investment of $20,000 in four pieces of equipment and recovered it in nine months after mining ether. Aware of the protocol change, she now plans to start mining other coins, such as ravencoin, conflux or ethereum classic.

“We have a huge tax burden and people are always looking for an activity that gives them profitability so as to be able to maintain their standard of living, to beat inflation or to avoid falling below the poverty level,” Frías said.

Among her clients, adults over 80 years of age stand out, because they are seeking to generate an extra income on top of the average retirement salary, whose minimum was $153 in April.

For Argentine retirees, mining can be an even more profitable activity than for the rest of the population, because the national government may subsidize between 60% and 100% of their electricity bills.

Low pensions are not the only problem in Argentina's economy. According to the latest report from the National Institute of Statistics and Censuses (INDEC), 37.3% of the population is under the poverty index.

“A lot of people turned to cryptocurrency mining because it's like an escape,” Frias concluded.

UPDATE 19:19 - An additional quote from Pablo Holmes was added to this post.