What Bitcoin mining in Paraguay taught me about risk

In 2022, a group of us went to Paraguay to inspect Bitcoin mining operations. Energy was cheap — far cheaper than anywhere in Europe. The economics looked extraordinary on paper. Then a colleague was blindfolded on the way to see our own machines. That's when I understood that "risk" is a word we use before we've experienced the real thing.

I want to be honest: the investment thesis wasn't stupid. Paraguay has hydroelectric power that generates genuinely cheap electricity, and at that point in the Bitcoin cycle, the margin on well-run mining operations was significant. The people who'd pitched us the opportunity were credible. The infrastructure existed. The numbers, when we ran them, checked out. What we didn't adequately price in was everything that sat outside the spreadsheet.

Rule of law is one of those things. Property rights are another. When your ability to physically access your own assets depends on navigating relationships with local actors whose methods for enforcing their interests involve blindfolds — you're not operating a business. You're operating at the pleasure of people who have more leverage than you do in that environment. That asymmetry doesn't appear in a DCF model. But it's the most important number.

“Cheap costs mean nothing if someone else controls whether you can access the upside.”

When I evaluate any cross-border or emerging market opportunity now, I add one question that wasn't in my original due diligence framework: what happens if things go wrong, and who has the power to make them right? Not legally — physically, practically, in the real world. Can you remove your capital? Can you enforce your contracts? Do you have recourse, or do you just have documents that say you have recourse? These are dull questions. The answers save you from spectacular losses.

The takeaway

The Paraguay operation collapsed and we lost our position. The lesson wasn't "don't invest in emerging markets." The lesson was: the more exotic the return, the more precisely you need to understand where the risk actually lives. Risk and return are always connected. The ones who got hurt were the ones who looked at only one side of that equation.