Why Has the Use of Cryptos in Venezuela Grown So Much?

The permanent devaluation of the bolivar plus consumers’ and companies’ distrust of the local currency has boosted the use of cryptocurrencies in the South American country.
The sanctions imposed by the US and the European Union on Russia will impact Venezuela along with Cuba and Nicaragua, the only countries in Latin America that support the invasion of Ukraine.

The use of cryptocurrencies in Venezuela has skyrocketed in the last three years due to a series of factors such as hyperinflation, the constant loss of value of the bolivar, the shortage of banknotes, and the general mistrust of the local currency, explains economist Aaron Olmos.

The situation with the bolivar became so complicated for merchants and consumers that the economy gradually turned to various forms of payment to overcome the difficulties.

Despite the obstacles put in place by the government of Nicolás Maduro for trade in currencies other than the bolivar, the general population has turned to the use of the dollar, the euro, and the Colombian peso, as well as cryptocurrencies to pay for goods and services and carry out any commercial transaction.

Venezuela became the Latin American country where the population uses digital money the most. "In a situation of hyperinflation, lack of confidence in the monetary policy and shortage of banknotes, crypto assets found a place to take root," Olmos explained in statements to the EFE.

Venezuelans Mine BTC and Save in Crypto

Despite constant power failures and having some of the slowest internet service in the world, many Venezuelans and even the government itself have dedicated themselves to Bitcoin mining. Cryptocurrencies are also a store of value for those who do not have dollar accounts abroad and need to keep their savings.

In the country’s capital of Caracas, it is normal to see advertisements on the street related to crypto trading, including on billboards, bus stops, taxis, electric power poles, and on the facades of commercial establishments.

In 2019, the height of operations in a year was registered, the expert pointed out, citing historical data from the LocalBitcoin exchange platform. Trade equivalent to $303 million was produced in one year, from a low of $1,248 traded in 2013.

According to the Chainalysis Global Cryptocurrency Adoption Index, Venezuela is one of the leading countries in the region in the use of cryptocurrencies. The latest available data places Venezuela in the Top Ten globally for users of cryptocurrencies.

Support for Russia Will Impact the Venezuelan Economy

After the sanctions imposed by the United States and the European Union on Russia for the invasion of Ukraine, it is expected that the Venezuelan economy will also be impacted due to its dependence on Russia to market its oil. The socialist regime of Nicolás Maduro, together with those of Cuba and Nicaragua, have been the only ones in Latin America to support Russia’s invasion of Ukraine.

The strong commercial and political ties of these three countries with the government of Vladimir Putin will make these countries “feel the squeeze,” said the director of the National Security Council for the Western Hemisphere, Juan González, in statements to the Voz de América.

Venezuela had been sanctioned by the US government for the permanent violation of human rights against the population and after the disputed presidential elections of 2018, which gave victory to President Maduro, who is not recognized by the US or the EU.

González said that the sanctions against the Russian government and oligarchy are so robust that "they will have an impact on those countries that have economic affiliations with Russia, and that is by design."

"Venezuela is going to begin to feel that pressure, Nicaragua is going to feel that pressure, as well as Cuba," González said. "But in the end, what we want are negotiated solutions to the crisis in Venezuela, with a restoration of the democratic order in Nicaragua, and we want the Cubans to be the ones who determine their future, and not a dictatorship.”

Disconnection of SWIFT Also Affects the Government

Opposition deputy Juan Guerra explained in a tweet that since Russia is disconnected from the SWIFT system, the accounts of the Venezuelan regime will also be affected.

“If the government money is in Russian banks, they will not be able to be transferred to make payments. Everything gets complicated," he said.

He gave as an example that “If PDVSA has an account in a Russian bank excluded from SWIFT and wants to make a transfer to Banxico in Mexico, UBS in Switzerland or a bank in Turkey to pay a supplier, it will not be able to do so that way.”

On the Flipside

Despite having issued the Petro digital currency, one of the first in the world, the government has not been able to get the population to use it because it generates the same mistrust as the bolivar.
An attempt was made to convert the Petro into a CBDC, but its administration and listing is not transparent, since its price is set arbitrarily by the Central Bank, which is not independent either.
The Venezuelan oligarchs linked to the regime who had their accounts in dollars and other currencies in Russia will also have problems making use of their funds.

Why You Should Care

After the collapse of the price of the ruble on Monday to less than 1 cent on the dollar, the losses for the Venezuelan government and for the regime’s officials who have accounts in Russian banks are gigantic when converting to euros or dollars.