Texan bitcoiners start mining in Argentina, where peso is in freefall

Mendoza, in Argentina, is well-known for its vineyards and full-bodied Malbec wines. But the famed wine area in the foothills of the Andes mountains is also home to the world’s second-largest shale gas deposit, known as Vaca Muerta, which translates to “dead cow.”

For two Texas-based bitcoin miners, the oil deposit provides a valuable resource: wasted energy.

Brent Whitehead and Matt Lohstroh, both Texas A&M University grads, have been mining bitcoin in the oil fields of East Texas since 2019. That’s when they launched Giga Energy, with the purpose of converting flared natural gas into electricity to power bitcoin mines, which are famously power hungry.

Giga made its first venture into Argentina on Tuesday, following its growth into the United States and Shanghai. The company is collaborating with Phoenix Global Resources, an oil and gas corporation with operations in Mendoza, and Exa Tech, an IT services company, to build a two megawatt bitcoin mine on top of Vaca Muerta.

Giga’s system entails installing a shipping container with thousands of bitcoin miners atop an oil well and then diverting the natural gas into generators that turn the gas into energy, which is used to power the miners. According to Crusoe Energy Systems’ research, the approach cuts CO2-equivalent emissions by around 63% when compared to continuing flaring — or burning — of unused gas. It converts wasted energy into a profitable asset for oil producers.

“By capturing stranded natural gas to power modular data centers for energy-intensive computing, Giga is actively contributing to reducing global methane emissions,” Whitehead said in a recent interview with CNBC. Whitehead comes from a long line of “wildcats,” a word used to characterize those who do high-risk exploratory drilling.

Exa Tech is in charge of ground operations at the small pilot facility in Argentina, while Phoenix Global provides gas and Giga supplies equipment.

Bitcoin mining is very profitable during a bull market in the cryptocurrency, therefore present market circumstances are ideal for a buildout. Bitcoin has gained 170% in the last six months, reaching numerous all-time highs, fueled in part by optimism over the introduction of spot bitcoin exchange-traded funds in the United States.

The rise has boosted the share prices of publicly traded bitcoin miners. Last year, the value of Riot Platforms increased by more than four times. CleanSpark experienced a more than fivefold increase in 2023 and continues to grow at 112% this year. Cipher Mining experienced over 600% growth last year and is projected to increase by 27% in 2024.

Lohstroh told CNBC that Giga has produced more than $10 million in revenue this quarter. It is not the only miner looking for opportunities in Argentina, which ranks 12th among the top worldwide methane emissions, according to World Bank data.

Crusoe, which assists oil companies such as ExxonMobil in converting flare gas into a usable resource, helped launch a bitcoin mine in Vaca Muerta in June as part of an ongoing effort to reduce energy waste and the environmental implications of natural gas flaring.

Giga’s mine is purposely tiny to begin with and is not expected to be profitable right away. Before scaling up the operation, the corporation needs to ensure that all of the necessary equipment can be imported smoothly. The mine has been running a test since December, and Lohstroh estimates the site has mined in the area of $200,000 to $250,000 worth of bitcoin.

Giga estimates that the mine’s upstream facility will minimize CO2 emissions by about 180,000 tons per year. The plant is also intended to sell any excess power to Argentina’s grid, generating cash while reducing operating redundancies.

Cryptocurrency is popular in Argentina.
It helps that bitcoin isn’t a difficult sell in a country where inhabitants have long experienced economic insecurity and volatile currency movements.

Official government calculations predict that annual inflation would reach 211% in 2023, the highest level in 32 years, significantly reducing the country’s purchasing power. Today, two out of every five Argentines lives in poverty.

Vitalik Buterin, the co-creator of Ethereum, previously told CNBC that crypto has considerably more use cases in Argentina than in many other regions of the world, pointing out that he discovered coffee shops that accept bitcoin and ether.

When Buterin visited Argentina in late 2021, he observed that many individuals utilized and appreciated cryptocurrency. “I literally got recognized on the streets of Buenos Aires more often than I got recognized in San Francisco.”

Argentina’s President, Javier Milei, stated at the World Economic Forum in January that “shock therapy” is the best approach to confront his country’s grave crisis. One strategy was to devalue the national currency by 50% in order to reduce inflation. Milei, who took over as president in December, supports bitcoin and has proposed dollarizing the economy, as well as dissolving the central bank and privatizing the pension system.

“We started this before Milei went into the office,” Lohstroh stated. “I think it’s pretty interesting that in lockstep, in stride, we’re turning this equipment online in the region, as it’s becoming dollarized and becoming more stable and giving real investment dollars into the economy.”

Exa Tech’s director of business development, Federico Brom, claims that Argentina has “basically banned imports” to safeguard its currency. That could be a challenge for scaling the bitcoin mining industry.

Nonetheless, Brom said they’ve received “a lot of support, a lot of hype, and a lot of interest” in what they’re offering.