The crisis in Venezuela is having some side effects that could prove interesting for Bitcoin traders. Many crypto enthusiasts have already noted the popularity of Bitcoin in the troubled South American country, but now that Venezuela’s political crisis has escalated after presidential rival Juan Guaido declared himself acting president two weeks after Maduro (president since the death of Hugo Chavez) was sworn in for another term. The opposition led by Guaido, which controls the National Assembly, accused Maduro of election fraud.
All this comes after years of hyperinflation that have decimated the Venezuelan economy and eviscerated the value of bolivares. In 2018, inflation was estimated to have hit 80,000%, and today it could even be as high as 380,000%, while 3 million people (a tenth of the population) have fled the country due to food shortages and the government’s treatment of dissent. There are even predictions coming from the IMF that inflation in Venezuela could reach as high as ten million percent this year, as the devaluation of the currency continues to increase.
What does this all have to do with Bitcoin? Thanks to hyperinflation and political uncertainty, Venezuelans with the means have pushed Bitcoin trading in Venezuela to an all-time high. Weekly trading volumes in January exceeded 2,000 BTC per week, roughly $6.8 million on local cryptocurrency exchange.
It’s expected that this represents only a fraction of overall Bitcoin trading by Venezuelans, many of whom prefer to use centralized cryptocurrency exchanges in neighboring countries like Colombia and Brazil.
That makes it considerably more difficult to estimate Bitcoin trading volumes inside the country. But there have been major spikes in trading volumes from exchanges located in Colombia. Between Venezuela and Colombia, the two countries account for 85 percent of trading volumes in Latin America across P2P exchanges. Within just a few weeks of 2019, Venezuela has seen thousands of Bitcoin transactions, a four-fold increase since the summer of 2018.
The situation is unique, with Venezuela now owning the largest oil reserves in the world. Despite the oil, the economy is a state of collapse, having shrunk by nearly half since 2013. Sanctions from the US aimed at toppling the Maduro regime in 2017 worsened the country’s predicament, and new sanctions against the state-owned oil company could make the situation even worse still.
With a self-proclaimed president and a hyper-inflation crisis, Bitcoin is proving to be a safe haven for Venezuelans hoping to preserve some of their savings in the crisis.
The country has even attempted to introduce a sovereign cryptocurrency authorized by the government to help citizens preserve some value for their money. The Petro, a state-backed cryptocurrency, is widely regarded as a desperate attempt to preserve some wealth in the face of rising sanctions. The Petro is backed by raw materials. Each Petro represents a barrel of oil. The people in charge hope that sales of the Petro will help the government pay its debt obligations. Whether the Petro is a real cryptocurrency remains up for debate.
One thing is certain: in extreme crises such as the one Venezuela is having, cryptocurrency could prove to be a safe haven. Buy Bitcoin if you’re worried about the future value of the dollar or your local currency.