Bitcoin Miners’ High Hopes for Latin America Dented by Paraguay

The promise of Latin America as the future of crypto mining was subdued by news that Paraguay won’t cap the price of electricity for the industry.

At the World Digital Mining Summit in Cancun, Mexico, last month, Bitmain, the world’s largest bitcoin mining rig manufacturer and the host of the conference, touted Latin America, particularly Paraguay and Argentina, as promising countries for mining. About a quarter of the conference was dedicated to the topic of “Latin America: Unlimited Potential Blockchain Land.”

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Argentina’s BitPatagonia and Paraguay’s Penguin Digital were invited to present, while Yiding (Fred) He, Bitmain’s director of business development, talked up the region’s potential, although he cautioned that it’s important to find the right partner to work with in Latin America.

Bitmain itself is looking into opportunities in the region, as are many other major firms.

The availability of cheap electricity in Europe, North America and former Soviet countries has dried up this year, partly because inflation and the war in Ukraine are driving up energy prices and partly because regulators and grids are hitting the brakes on mining as they assess what effects it has on their communities.

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As a result, companies were looking at Latin America, a region that still has untapped energy potential. Paraguay, in particular, boasts a relatively low price of under five cents per kilowatt hour (kWh) and as low as 35 cents. Many industrial miners in the U.S. are facing prices over that.

But Paraguay’s national grid operator and the government have asked miners to pay as much as 60% over the industrial price of electricity. A bill to stop that plan was voted down in the Paraguayan legislature on Dec. 6, meaning miners’ margins will be far thinner than what they had calculated before.

Meanwhile, high energy prices have already thinned out miners’ margins around the world, leading to some high-profile liquidity crunches.

In previous conferences held at exotic locations, participants would often take meetings in the pool, or at least by the pool, and take time to catch up before getting to business. But this time, meetings were far more serious, and miners were bringing to the table printed financial presentations to now-scrupulous financiers, one attendee remarked.

The mining industry has been hit hard by the crypto winter. Miners’ direct exposure to flailing companies like bankrupt crypto exchange FTX appears to be minimal and mostly through intermediary companies such as crypto lender bankrupt BlockFi and others. (That is with the exception of Celsius Network, a bankrupt crypto lender that was operating a mining arm.) But they have felt the effects of the crypto winter as much as anyone. Miners’ revenues have declined massively, along with the price of bitcoin (BTC), while energy prices have been soaring.

Big companies in the mining industry like Compute North and Core Scientific (CORZ) have been affected, along with smaller firms that face higher energy prices. Few, like CleanSpark (CLSK), have been in a position to take advantage of the situation to buy distressed assets.

During the last dinner in Cancun, closed to most attendees of the event, Micree Zhan, co-founder and chairman of the board at Bitmain, unveiled the price of a special batch of new S19 XP Hyd. mining machines. The price was planned to be $19 per terahash (TH). But Zhan, speaking with a hoarse voice, decided on the spot to lower it to $18.5/TH in light of the revelations about FTX and how the market reacted. (Terahash is a measure of computing power.)

Read more: Bitcoin Miners’ FTX Contagion Exposure May Amplify Industry Pain