Hyperinflation in Venezuela has pulverized the value of the bolivar currency with annual inflation recently calculated at 2,940.8%, according to Central Bank data. Since the Nicolás Maduro regime issued the petro, its attempt at a national cryptocurrency, Venezuela’s public cryptocurrency ecosystem has been drastically deteriorating.
In this digitally connected world, Venezuelans have flocked to cryptocurrencies as a store of value, seeking refuge from inflation. That leaves the less technologically adept facing a stark reality.
Imagine the following scenario for the sake of analogy, you worked hard for 40 hours this week and you received a bi-weekly paycheck of $2,000 on Friday. You’re glad because it will allow you to buy the daily necessities for you and your family. Ideally, you want to spread out the expenses to make your paycheck last for at least two weeks. However, here’s the bad news. The cost of basic items like consumer goods are soaring so fast that everything could cost 50% more the next month. That’s right. Your $2,000 would be worth only $1,000 in under 30 days.
That’s the problem Venezuelans face every day. This is where cryptocurrency represents hope for Venezuelans during the chronic rise of hyperinflation. Moreover, this offers a real-world case study on the usefulness of cryptocurrency for western societies with rampant fiscal stimulus.
Cryptocurrency to the Rescue
Cryptocurrency has experienced a surge in popularity amidst hyperinflation as a store of value -- with Bitcoin and Dash being the most popular.
The government has released the B.V. Wallet as their central bank digital currency, where Venezuela’s fiat currencies can be converted into Bitcoin by any Venezuelan citizen. Much like U.S. Dollar prior to 1933, the money is more stable with a backing but still wildly swings up and down with the regular flows of bitcoin. As a result, the popularity of Bitcoin as a currency rose in the country. Pizza Hut doesn’t accept cryptocurrency in the U.S.A., but it announced in November 2020 that it would accept Bitcoin, Dash, and XPT as payment for Pizza Hut restaurants in Venezuela.
Venezuelan aviation company Caracas Air will now accept payments in bitcoin, according to a tweet from the CEO of the company.
Peer-to-peer BTC trading has seen a steady increase in the country, with volume continually growing according to the chart below.
Many local merchants also accept cryptos. The benefits for citizens are clear, preserving the value of money while protecting it from their government. It also offers solutions to send humanitarian aid more efficiently and securely.
Chainalysis head of research Kim Grauer said: “Yes, savings denominated in Bitcoin are subject to price volatility. People may be trying to get to stable coins by initially purchasing Bitcoin. The Venezuelan Petro’s value has been deteriorating rapidly, so cryptocurrency—even Bitcoin—may be seen as a more stable alternative.”
For economically productive Venezuelans, holding cryptocurrencies like Bitcoin remains more valuable in the longer term than holding bolivars or even U.S. dollars, which are difficult to transact due to domestic regulations and international sanctions. So, it makes logical sense that Venezuelans are using alternative decentralized crypto to preserve the value of their savings or make payments.
A Hint Of Future Adoption Rate
In February 2018, Venezuelan President Nicolas Maduro announced the official cryptocurrency backed by the government. It’s called Petro, but the coin is not decentralized. Rather, it is controlled by the government. Because of this, the coin failed to garner popularity like U.S. dollars and Bitcoin with the locals.
Now, here’s an interesting point. Other countries that also suffer from hyperinflation have not come close to Venezuela in peer-to-peer bitcoin activity. Despite its small size, Venezuela has the 3rd highest levels of everyday crypto use in the world, according to the blockchain intelligence firm Chainalysis.
Many experts believe that the government issuing its own cryptocurrency adds credibility to the concept of cryptocurrency. As a result, locals are comfortable with using Bitcoin and other cryptos in transactions. This point hints at the future of Bitcoin. Skeptics believe that bitcoin’s value would decline when more governments issue their own cryptocurrencies. For example, the Chinese government will start offering their own digital yuan. But Venezuela’s case offers a different perspective. As more governments adopt their official (but not decentralized) cryptocurrency, it may legitimize Bitcoin even more in countries with unstable currencies.
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