As already reported in our article Crypto Mining in Argentina, in theory, “too good to be true” and our advice to prospective investors turned to be quite opportune and wise. With a clear policy shift regarding subsidies by the current government, it is important to keep this topic updated aiming to understand if crypto mining in Argentina is still a good business or could be profitable in the future.
For those who are not acquainted with crypto mining operations, we recommend this article by iProUpEven though the fantasy of having “the money-making machine at home” is partly true with this technology, the key aspect is to get a full comprehension of the operation’s mechanism and how income is produced. Another key aspect is the legal and accounting framework of this activity: assets obtained from this activity should be included in the owners’ sworn statements for tax purposes.
As previously commented in other posts, crypto mining (especially those cryptocurrencies using the consensus mechanism “Proof of Work” or PoW) consumes a lot of energy, mainly due to the cooling power required to prevent machinery from overheating. Mining equipment has distinctive features as shown in the electricity meters and in the distributors’ bills; so, huge mining projects can be easily identified by authorities.
The energy implications of crypto mining have led local authorities to blame crypto farmers for the
power outages suffered in some locations, as reported by La Política Online. This position cannot be sustained from a technical point of view.
In fact, the City of Buenos Aires has been struggling with many infrastructure problems with the power grid for more than 20 years with a growing consumption (peak demand in summer time), a high-consuming population, deficient transport and lack of investment. It seems to be more a scapegoat rather than a true responsibility on the mining activity. As from December 2021, some governmental officers have been focusing on this sector of the economy. Russia’s invasion of Ukraine has led to a price shock inflating fossil fuels’ prices, leading the Secretary of Energy to discuss subsidies and, only now, this public expenditure reduction plan is having impact on the public in general. In the last months, users wishing to keep their subsidies had to update their personal data and had to declare their family income to be able to keep subsidies, totally or partially. It is expected that energy at current prices will only be kept for low-income family homes.
Considering that the government is planning to cut subsidies, even for residential electric consumption, and that local authorities have focused on the crypto mining activity -even before this policy shift- “crypto miners” are likely to pay full energy prices for their energy consumption in the short term, mainly because the assets they generate have international prices.
The impact of rate increase is expected to be reflected soon in the electricity bills of those companies committed to this activity, either directly or through housing services. However, there are still no definitions for “micro-miners”, who are those individuals with one or two computers at their homes or offices with a minor and irregular consumption. At first, they are likely to be unidentifiable for local authorities but, if they succeed in making an investment in dollars for a mining equipment, they will be probably excluded from the subsidized population.
The mining activity requires a thorough and permanent assessment considering the variation of one of the main components of the fixed costs (we always recommend to foresee a negative prospective situation) within a framework of international rates for the energy required for mining equipment. Besides, profitability and business effectiveness depend on many factors; energy is only one of them.
Other factors to be considered are: the equipment purchase price (expressed in dollars and in a period of dollars’ shortage due to the great demand for the mining and gaming industries), the type of hardware and currencies to be mined (each type of hardware is designed to mine certain currencies), the cryptocurrency to be mined and its price fluctuation and, finally, the time upon which assets are sold. To conclude, even assuming no variation in energy price as a fixed cost, the forecasts of this ever-evolving business need to be revised continuously for an efficient and profitable performance.
