Venezuela’s economy is continuing to tank as desperate citizens look for ways to escape the plummeting value of the Bolivar. President Nicolas Maduro stumped for a state-backed crypto, the Venezuelan Petro, pegged to the country’s crude oil reserves. While the project claimed to have raised $735 million USD in its first day of fundraising, US sanctions and the general mistrust of the socialist government hasn’t resulted in the state crypto gaining much popularity. In the meantime, people in the country are turning to Bitcoin and other digital alternatives to their failing fiat currency. Despite Bitcoin’s volatility as compared to markets in the US, EU and elsewhere, it is a far better store of value and medium of exchange than most other options in the Venezuelan economy.
With government-subsidized energy, some people are turning to mining Bitcoin at no cost. However, the authorities have cracked down on Venezuelans for “stealing free energy” in order to mine Bitcoin. The CICPC (Cuerpo de Investigaciones Cientificas, Penales y Criminalisticas), Venezuela’s largest policy agency, announced in 2017 that it had begun arresting people for “cyber fraud and power theft.” A logical step would have been for the government to raise prices on their nationalized energy, to create something similar to a free-market solution to the potential energy crisis, rather than arresting people for using what was given to them at a low price. In the meantime, people are continuing to resell their electricity to miners on the black market.
Venezuela plans to devalue its currency by removing three zeros in August, so that 1,000 Bolivars are now worth just one. This doesn’t help its citizens who are still in emergency mode. They’re not even spending the government-backed fiat, and have even repurposed it to hand-make souvenirs for tourists like bolivar handbags and wallets.
In order to preserve what little wealth they have, as prices increase and Bolivars are practically worthless, Venezuelans are trading in their fiat for Bitcoin. According to Coin Dance data, Bitcoin trading against the VEF started to make its mark at the end of 2017, and is now higher than it’s ever been, with a five-fold increase in volume in late May, versus April numbers.
According to Reuters, if all goes as planned, Venezuela will overhaul its currency by removing three zeros on August 4th, two months later than they had originally planned. This was in response to bankers who asked for the postponement, partly due to printing delays for the new money. The annual inflation in socialist Venezuela is approximately 14,000%, according to the opposition-controlled legislature, but this is nothing new. Though the Bolivar tanked 99% since Maduro took power in 2013, the previous leader, Hugo Chavez also removed three zeroes from the currency in 2008.
Economists agree that removing zeroes won’t have a lasting effect, and will need to be repeated periodically to keep up with inflation, and while most would agree that the hyperinflation is due to economic policy, Maduro has suggested that the country is the victim of an economic war. Regardless of the cause for inflation, Venezuelan money is worthless, and crypto may very well be the lifeline that the citizens need, in order to survive these harsh times. And, with this huge spike in trading volume in South America, it’s possible that Bitcoin prices rise to new all-time-highs.