Argentina is undergoing a crypto-revolution

Argentina is undergoing a crypto-revolution

Argentina's economy is a good birthing environment for the crypto-world. And the populist promise of cheap energy here is a crypto-miner’s dream..

While Alberto Fernández stole the show last week with his racist gaffe, Sotheby's digital auction generated US$17.1 million selling digital art, including a CryptoPunk known as "Covid Alien" that sold for US$11.75 million.

Indeed, according to a new research, Argentina placed 21st in the world in realised bitcoin gains last year, with almost US$200 million.

And, as Economy Minister Martn Guzmán spars with Buenos Aires Province Governor Axel Kicillof and Vice-President Cristina Fernández de Kirchner over energy subsidies in an election year, they've helped fuel a crypto-mining boom thanks to dirt cheap domestic electricity bills.

Despite the high volatility in the cryptocurrency market, which saw bitcoin's price climb 550 percent to a record above US$60,000 in a short of months, only to plummet down to US$35,000 just 13 days later, there is a crypto-boom going on around the world.

Argentina's economy is a good birthing environment for the crypto-world. Stuck in a decades-long economic depression with consistent gusts of stagflation, administrations of all stripes have depended on price freezes and currency controls to try to keep inflation under control.

Nonetheless, the erosion of purchasing power continues unabated, forcing many to try to find their way into US dollars by paying a significant premium for the so-called “dollar blue,” which is currently at 58 percent.

According to a report in the economic daily El Economista, Argentines have roughly US$130 billion in the financial system — which is considered to be approximately 8% of the world's actual physical stock of dollars — and another US$175 billion "under the mattress," as we like to call it.

Cryptocurrencies are already being used to convert pesos into dollars, circumventing government restrictions through peer-to-peer transactions at more competitive exchange rates than the aforementioned blue-chip dollar, with transactions increasing from under US$200,000 in late 2019 to US$600,000 last year, according to ChainAnalysis data.

In the midst of an election campaign, the ruling Frente de Todos coalition is embroiled in an internal power struggle over the selection of an economic plan. Guzmán attempted to lower the fiscal deficit despite the fact that the country was in the midst of an enormous recession aggravated by the new outbreak of Covid-19 infections and deaths.

Guzmán is in Fernández de Kirchner's crosshairs because she believes ex-President Mauricio Macri lost the elections by raising public-sector wages amid a recession. The populist promise of cheap energy has turned into a crypto-miner’s dream..

Bitfarms is a publicly traded bitcoin mining firm that said it was expanding its operations in Argentina from 60 megawatts to 210, “enough to sustain about 55,000 new-generation miners, which may generate around US$650 million in revenue.”

In the same statement, Bitfarms stated that the breakeven cost of mining a bitcoin in Quebec, Canada, where they had operations, was US$7,500 in the fourth quarter of 2020, compared to an estimated US$4,125 in Argentina, provided their facility was operational at the time.

Electricity accounts for over 75% of mining costs, which helps to explain the math behind paying for subsidised energy in pesos only to sell bitcoins and ether — the second-largest cryptocurrency — at a premium over the official dollar exchange rate.

Argentina already boasts over 20 crypto-farms, with several taking use of the chilly weather in Patagonia to save cooling expenses.

The recent trend in the cryptoworld has been about NFTs, which stand for "non-fungible tokens." The market rose explosively and, predictably, fell swiftly. These NFTs are linked to digital information, such as sports highlights or digital art, and then sold.

The Sotheby's auction came after a sale by rival auction house Christies in March, which crowned an artist named Beeple as the third-most expensive living artist, selling a single NFT for more than US$69 million.

Argentina's creative community, which is known to be quite good and relatively cheap, has a significant opportunity in the emerging world of NFTs, with several of them working in large initiatives ranging from the metaverse to digital museums.

On the sporting front, the Argentine Football Association (AFA) announced a collaboration that will make the national team the first to issue its own token, joining a group of clubs that includes River Plate, Racing Club, and Rosario Central.

All of these creatures seemed to have thrived for a variety of reasons. Aside from the intrinsic tendency for disaster and currency debasement that drives every Argentine to seek constant workarounds, the prospect of a future reward has sparked a global crypto-community into action