CRYPTO MINING IN ARGENTINA: PANACEA OR RISKY INVESTMENT?

Por 21 febrero, 2022 No Comments

A lot of information has been reported lately regarding Argentina and its benefits for crypto mining. After China’s ban for crypto activities (see article), Argentina has been considered a paradise for crypto mining farms. The truth is, our country became an attractive target for crypto miners due to low energy costs but not all conditions are favorable for this type of business. This article intends to bring some light on this topic and to highlight the risks involved as well.

Many traditional industries turned into crypto mining. As clearly seen in this article (in Spanish but it has an interesting chart), many industries have reconverted their premises to be part of this booming business. Industries capable of operating heavy equipment can easily rely on their electrical installation for small mining equipment with no additional expenses and extra earnings. The only concern is if these companies declare their income or possessions from cryptocurrencies mining.

As reported by iProUp, blockchain computations increase continuously. In spite of having being declared “dead” more than 400 times by its detractors, Bitcoin blockchain has over 700,000 blocks, surprisingly growing at a fast rate (besides its well-known valuation increase).

This growth is a good starting point to evaluate the possibility of developing a mining project. After a deep analysis of the investment required and a good business plan proposed by reliable professionals, I consider it is quite an interesting option for investing in Argentina. Besides, some equipment can be used for mining different coins and the owner can choose, among many of them, which is the best option for mining depending on prospects and rewards involved. I can conclude that Bitcoin mining is a profitable activity including other cryptos as well.

Electric Energy

The energy matrix is an important item upon evaluating a mining project. As you may already know, BTC has been attacked for the high energy consumptions required for mining (at least compared with other coins) and their environmental effects. Mining investors have to decide mainly if farms will operate with power grid or with renewable energies.

Renewable energies have a good impact on social and environmental aspects and may be quite positive in terms of marketing though it does not appear to be a workable solution in a country with obstacles for import of inputs required for its operation.

Argentina is quite an attractive target for mining activities due to cheap electricity (in dollars). In addition, the cold and windy weather in some areas like the Patagonia (reducing drastically the energy consumption for cooling servers) together with tax benefits and some duty-free areas are advantages that have contributed for the development of the mining business in Argentina.

We strongly recommend a detailed analysis of the current situation. Both consumers and investors perfectly know that large electricity subsidies are a longstanding policy implemented by this government and by many others before. But what happens with our business model if these subsidies are removed in the near future? This situation is an unexpected event for the time being and for the next 2 years ahead. However, we suggest to review this business model. These artificially implemented benefits could be removed as a state policy, especially upon considering the time elapsed for the return of investment.

Infrastructure

Other item to be considered upon evaluating a mining project is the existing infrastructure in the area intended for our mining farm. Despite the economic benefits existing in the Patagonia, there are many areas without reliable electric conditions. This type of business depends on energy 100% and mining equipment could be damaged in case of overload, high or low voltage. So, the project should be evaluated combining a strategic location and tax benefits as well.
This is not relevant in the case of self-sustainable companies in terms of energy but, as already mentioned, costs increase may delay the expected return of investment. Argentina has attractive industrial zones ideal for mining ventures throughout the national territory.

Imports and exchange rate

Despite mining machinery is imported and has to be paid in dollars (often at the official rate), the company’s fixed costs will be paid in pesos. Imports may be subject to some legal or factual restrictions, mostly if not suitable declared but, once the hardware is nationalized, investors are capable to start operating. It is literally a “plug and play” industry. Additionally, cryptocurrencies are transacted at similar blue-chip swap conditions; therefore, investors pay their imports at the official exchange rate having huge benefits due to the exchange rate gap.

We strongly recommend a deep analysis of the market. No business can be developed based on artificial market conditions and public policies have to be clearly outlined. Overall conditions should be evaluated together with possible policy reforms as well.

Management Companies

A new business has emerged connected with crypto mining. These are companies that provide management services for several investors. They receive a fee based on the coins mined in exchange for the installation and configuration of investors’ machinery in their own premises, assuming operation costs and with tracking software for their customers, adding transparency and creating a secure mining environment.

Conclusion

We can conclude that the mining business could be a good investment option in Argentina. However, risks assessment should be carried out by an advisory team of accounting professionals and business analysts due to some transitory market conditions. We can rely on the cold Patagonian weather but energy subsidies or the exchange rate gap are likely to be changed in the near future. Finally, a tax framework is required for this booming activity.
Diego Nunes also appeared on the radio show GENERADORES TV to talk about crypto mining in Argentina as a business opportunity.

Under different formats, this activity is carried out in many ways. Some management companies provide mining solutions; others handle machinery imports as well charging a standard fee. This is ideal for keeping investors stress-free or for those seeking business opportunities with thriving prospects. An exhaustive analysis of these companies is recommended to avoid any type of fraud.