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Venezuela – Bitcoin Is the New Normal

“Bitcoin as a safeguard against fiat devaluation” might be a dystopian scenario for many, especially in relatively salubrious first-world regimes, but that is exactly the ground-reality in hyper inflation-stricken Venezuela. Precipitated by a steep decline in oil prices, inflation, caught up in a negative spiral, has spiked up to an unbelievable 1.3 million percent. The government’s crypto-native solution “Petro”, backed by Venezuelan oil reserves has done little to assuage the government’s insolvency crisis. Faced with the prospect of a significant devaluation in the Bolivar and the government’s futile efforts to revive an economy in virtual rigor mortis, the hapless residents of Venezuela are supposedly turning to Bitcoin to preserve their wealth. According to data from LocalBitcoins, trading activity has risen meteorically from about 600 BTC per day in mid-2018 to over 3k BTC per day in Jan ‘19.

That said, the adoption of Bitcoin in Venezuela is still a far cry from meaningful penetration as the users of Bitcoin are still the relatively luckier ones from upper and middle classes. A bulk of the population is still cut-off from access to Bitcoin due to a lack of internet access and a lack of awareness about the cryptocurrency asset class. Users who are storing their wealth in Bitcoin are using LocalBitcoins in Venezuela to exchange it for Bolivar whenever they have to make a purchase, sometimes for even as small as a $5 purchase.

This is not the first instance of users turning to Bitcoin in the face of a currency crisis. Trading activity spiked up significantly in both Turkey and Iran when their local currencies met with a prospect of significant devaluation due to ballooning government deficits, although situations there were not as perilous as the current currency crisis in Venezuela. Bitcoin also played a starring role during the Mugabe transition in Mugabe. Closer to Venezuela, Argentina is another Latin American nation where Bitcoin has found a loyal user base.

While we might still be some way from seeing Bitcoin emerge as the ultimate saviour of wealth in economies mired in political and economic crises, real-life examples of people looking up to Bitcoin as an alternative for wealth storage looks very promising and underpins Bitcoin’s value proposition as a non-sovereign hedge against inflation.  

Meanwhile in Crypto Wonderland….

“Iran to Tokenize Gold on Stellar” Iran’s biggest banks have joined forces towards a vision of tokenizing assets on a private blockchain platform that may start officially operating by March 20th. The Stellar based blockchain has a native token called PayMon (PMN) which is backed by 30 milligrams of 24-karat gold with each PMN worth 156,581 rials. 15% of 1 billion in total supply is to be offered to the public with 20% to be offered to “anchors” which we take to mean institutional or big investors that have more than 300,000 PMN. The remaining 60% is to be distributed monthly with 5% going to the founding team. This is to be traded over the counter (OTC) at Iran Fara Bourse which handles about $2 billion in monthly OTC trading volumes.

“Crypto Remittance in Venezuela” The government of Venezuela has begun offering a cryptocurrency remittance service. Remittances can be sent using two types of cryptocurrency. The service was launched by the Superintendency of Crypto assets and Related Activities, the country’s main crypto regulator, which has also set a monthly limit and a commission per transaction. The petro is Venezuela’s national digital currency which the Maduro government claims to be a cryptocurrency backed by oil, gold, diamond, and other natural resources. Each coin was previously worth 3,600 sovereign bolivars (Bs.s). However, President Maduro raised its rate to 9,000 Bs.s in December and again in January to 36,000 Bs.s.

“Where Are The Bitcoins?” Crypto investors and exchanges often keep their holdings in cold wallets – typically, physical devices disconnected from the web that can be plugged into a computer when needed since internet-connected hot wallets can be vulnerable to hackers. A preliminary review of transactions of the six wallets using public blockchain records showed that from April 2014 to approximately April 2018, aggregate Bitcoin month end balances in the identified cold wallets ranged from zero to a peak of 2,776 Bitcoin. The average aggregate month end balance over the four-year period was approximately 124 Bitcoin. Some Bitcoin in the wallets appear to have been transferred to accounts at other crypto exchanges.

“Bahrain Forcing India’s Hand”As per the request of the Reserve Bank of India, the country’s central banking institution, local banks have been disallowed from dealing with crypto businesses such as Bitcoin exchanges since 2018. With no immediate plans of the Supreme Court of India to reverse the decision of the country’s central bank, crypto companies have been pushed out of the local market. However, a recent decision of the government of Bahrain to encourage cryptocurrency firms in India to come into the country and operate their businesses with proper resources could pressure India to potentially legalize and open its cryptocurrency market in the future.

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