The situation in Venezuela is continually deteriorating as the mass exodus of migrants continues to snowball. More than 2.3 million people are estimated to have already left the country with a population of only 31 million, and that number is expected to rise.
Venezuelan president, Nicolas Maduro’s socialist government is trending towards solidifying its authoritarian rule as the country reaches a diaspora level rivaling the ongoing Syrian crisis that led to the widespread migration of Syrians to Europe. Fueled by massive hyperinflation that has surpassed 2 million percent, as of August 2018, Venezuela’s Bolivar has effectively become worthless.
Crippling foreign exchange controls imposed by the government have further restricted citizens’ access to foreign currencies as a stable source of value. An emerging market for Bitcoin and other cryptocurrencies has developed over the last few years in Venezuela, representing a profound case study of Bitcoin’s potential positive impact on the struggling Venezuelan people.
The interest in Bitcoin in Venezuela initially began with the opportunity for mining it a few years ago. Due to the largely subsidized electricity market in Venezuela, electricity is practically free, so the costs of mining Bitcoin are drastically reduced. However, the Venezuelan government often cracked down on mining operations, sometimes arresting and holding individuals without cause.
With the depreciation of the Bolivar continuing to accelerate at an unprecedented pace, Bitcoin still represents a more stable option for value storage than the Bolivar despite being down nearly 70 percent from its all-time high. This is solely due to the sheer magnitude of the Venezuelan Bolivar’s increasing hyperinflation compared to Bitcoin. Bitcoin has a fixed total supply of 21 million bitcoins and uses a deflationary model for introducing bitcoins into the network through an algorithmically maintained mining reward system. As such, it is not susceptible to inflation.
Venezuelans have begun to turn to Bitcoin for other reasons too.
“We have forged several partnerships with Venezuelan nationals, to aid in capital flight and wealth preservation for victims of this regime” Says Galiano Tiramani, CEO of U.S Based Tirex Trading, “Lately, we have seen dramatically increased interest from those using bitcoin not only to store value, but as a means to move it out of the country.”
As long as Venezuelan’s have an Internet connection, they can send Bitcoin across its network freely outside of the control of the oppressive Maduro regime. Access for citizens to exchanging Bolivars for USD is nearly impossible with only a fraction of citizens able to trade more than a few hundred USD worth of Bolivars per year. Further, the Bolivar is currently the worst performing world currency against the USD this year, and the problem has been compounded by the government’s withholding US Dollars from importers, causing a dangerous shortage of basic commodities
Metrics provided by CoinDance offer some excellent insights into the rates of growth and popularity of Bitcoin in peer-to-peer (P2P) marketplaces. Unlike exchanges that charge low or no fees, data on CoinDance from P2P exchange LocalBitcoins indicates legitimately high volumes due to the higher fees and lack of wash trading or limited day trading.
According to CoinDance, weekly LocalBitcoins volumes in the Venezuelan Bolivar have gone parabolic since the end of March earlier this year.
“Skirting government imposed regulation is one of the most important use cases for Bitcoin. This is a censorship resistant technology, specifically designed to survive attacks from centralized powers,” Continues Galiano Tiramani, “It’s great that we can help people being victimized by another socialist failure, but it’s a tricky situation. Although US sanctions are not yet prohibiting dealings with an average Venezuelan citizen, we tread carefully because US companies are barred from dealing with specially designated Venezuelan nationals, ”
The same pattern with Venezuelans exchanging the Bolivar for Bitcoin is mirrored in Argentina, where their own economic crisis and hyperinflation is emerging. The Argentine Peso is currently the second-worst performing currency versus the USD this year, behind the Bolivar. According to CoinDance, Argentina’s exchange of the Argentine Peso for Bitcoin has also exponentially risen, even accelerating to new highs over the last month.
The situations in both Argentina and Venezuela demonstrate the potential of Bitcoin as a stable store of value outside of the influence of governments, particularly oppressive regimes. No limits on when and where you can send funds also contribute to the rapid increase in the volume of exchanging the Bolivar and Peso for BTC.
Other cryptocurrencies and their communities have taken notice of the crisis in Venezuela and have offered their support. Nano, a fast and flexible cryptocurrency payment network, started a Venezuelan outreach center and has been highlighting the problem to their users through their blog.
For Venezuelan’s, the situation is desperate and Bitcoin offers one of the few opportunities to salvage any sort of real value from a collapsed economy. As the consequences of devaluation and subsequent hyperinflation continue to unfold at national levels, evaluating how Bitcoin and associated cryptocurrency initiatives participate as solutions will provide a valuable metric for Bitcoin’s potential.
That said, cryptocurrencies also fluctuate and are very unstable, so they still can’t be relied on completely.