BitPatagonia, one of Argentina's largest registered crypto mining companies, recently received a 400% increase in its electricity tariff as a result of a regulatory change specifically targeting mining companies in that province, Pablo Holmes, the company's industrial director, told CoinDesk.
BitPatagonia is based in Tierra del Fuego, Argentina's southernmost province, which is home to more than 22 cryptocurrency mining companies, local sources told CoinDesk. The government, which disagrees with the energy consumption of these companies, has increased the wholesale electricity tariff in Tierra del Fuego by 170%.
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The national government, alarmed by increasing crypto mining activities, launched an investigation process in January to identify mining companies and measure energy consumption. The goal is for miners to "pay an energy price that corresponds to the cost of utilities, as it is unfair that they pay the price of a private consumer," it said at the time.
In Argentina, the government provides large subsidies to various electricity and gas suppliers, lowering the price of these services for end consumers. In February 2022, the budget for energy subsidies increased 207% year-on-year, according to a report by the Argentine Association for Budget and Public Financial Management (ASAP).
At the same time, the country is running out of dollars to continue importing energy, as reserves averaged $38.5 billion in March, according to the Argentine Central Bank. Net reserves are $1.65 billion and liquid reserves are negative $1.9 billion, according to a recent report by local investment firm Allaria.
Energy subsidies are a great opportunity for private miners, but not for registered miners who have to pay industry tariffs. Commenting on the situation, Holmes said he doesn't believe government crackdowns will encourage money laundering by crypto-mining companies and residents who aren't on the tax agency's AFIP radar.
"No one is going to say they are mining illegally in commercial areas, offices or homes just because they get a letter from a government agency. That's like responding to a letter from the Central Bank asking if that address is acting as an illegal exchange office (cueva) for buying and selling dollars. In any case, we understand that officials are doing their best," Holmes said.
Moises Sorloza, Tierra del Fuego's energy secretary, said recently that the provincial government has reviewed operations authorized for mining, but warned that there are unregistered "micro-mines" in the households that need to be regulated at the national level.
The official added that Tierra del Fuego's electricity system is "outdated" and "in no way can withstand the escalation of energy-intensive ventures."
Due to tariff increases and unfair competition between registered and illegal miners, BitPatagonia is exploring the idea of leaving Argentina and setting up operations in other countries, Holmes said, without giving a specific location.
Santiago Miranda, CEO of CriptoLab, a registered crypto mining company in Córdoba province, said that while the company pays the full electricity tariff, the activity is still "very profitable."
As for illegal mining and regulatory attempts, Miranda warned that "no one will provide information if there is no benefit to the taxpayer," adding that the company is working with various provincial governments to try to create a "friendly framework and not just a tax collection."
Low prices, high costs
According to an analysis by the data review organization Chequeado, monthly consumption of 300 kWh in Buenos Aires costs an average of US$5, while the same consumption in the United States costs an average of US$30.
This difference is prompting many Argentines to mine cryptocurrencies to generate income in foreign currency in the face of the constant devaluation of the Argentine peso and annual inflation of over 58%.
Manuel and Pedro, who wish to remain anonymous, are friends and entrepreneurs who invested $16,000 five months ago to mine Ether in an office in downtown Buenos Aires without being registered as prospectors.
"With one day of mining, we cover the excess of the electricity tariff for this activity," they said, indicating that they receive an income of US$30 per day.
The miners interviewed said they are not too worried about possible restrictions and taxes, as "regulation will chase technology, which is always one step ahead."
Manuel and Pedro plan to recoup their investment within 15 months. For now, they save what they mine, but when they want to exchange the cryptocurrencies for dollars, they do so through "cuevas," which exchange dollars at an unofficial rate and are usually hidden behind traditional stores like jewelry stores.
Lucía, who does not want to give her full name, started mining four months ago and faced an alarming increase in her electricity tariff. Despite subsidies, the value of her credit tripled after she started home mining, from $8 to $25.
"When the electricity bill came, I was worried, but I'm confident about the long-term investment," he told CoinDesk. His initial investment was US$4800. His cryptocurrency of choice was Ether and he plans to recover his investment in about eight months.
Lucia, Manuel and Pedro fear the Ether protocol change and hope to recover their investment before Ether 2.0 comes into play.
A popular niche
Home crypto mining has become so relevant in Argentina that even influencers have emerged to explain to beginners how to acquire machines and make the necessary investments.
Valeria Frías has more than 12,000 followers on her Instagram account and receives requests daily. In her spare time, she assembles, configures and sells data processing equipment for mining cryptocurrencies.
Frias initially invested $20,000 in four devices and made up that amount within nine months by mining Ether. Although he continues to mine Ether, he is also aware of the change in protocol and already plans to mine other coins such as Ravencoin, Conflux or Ethereum Classic.
"We have a huge tax burden, and you're always looking for a profitable activity to maintain a certain standard of living, fight inflation or not fall below the poverty line," Frías said of taxes in Argentina.
His clients include seniors over 80 who want to earn extra income on top of their average pension, which was at least $153 in April.
For Argentine retirees, mining can be even more profitable than for the rest of the population, as the government can subsidize between 60 and 100 percent of electricity rates.
Low pensions are not the only problem facing the Argentine economy. According to the latest report from the National Institute of Statistics and Census (INDEC), 37.3% of the population lives below the poverty line.
"Many people have turned to mining cryptocurrencies because it is a kind of escape," Frías said.