Over the past month, more and more Venezuelans are turning to bitcoin as a store of value.
Activity on peer-to-peer bitcoin service LocalBitcoins shows just how much the trend is growing. Very likely caused by the rampant inflation in the South American country, the surge in bitcoin interest comes as Venezuelans search for a currency that won’t depreciate as much as the Bolivar.
LocalBitcoins is what’s called an “over-the-counter” cryptocurrency exchange. Users post what amount of Bitcoin (or other cryptocurrency) they’d like to buy, for how much, and their location. Once the buyer finds a seller that matches their order, the two parties meet in person and make the exchange of cash for bitcoin.
The chart below shows that LocalBitcoins volume in Venezuela is exploding:
Source: LocalBitcoins, Coin.Dance
However, this chart above is measured in Bitcoins. It could be that Venezuelans are buying the same number of coins, but since the price of BTC has gone down, they’re buying more coins. The following chart shows the LocalBitcoins volume in USD across Latin American countries:
Source: LocalBitcoins, CryptoGlobe
As the chart shows, Latin Americans in general have been increasing their LocalBitcoins use, but Venezuela’s volume is growing enormously, Argentina, Venezula, Peru, Columbia, Chile and Mexico make up almost 20% of global LocalBitcoin volume, this is at an all time high. In contrast these six Latin American nations comprise only 0.126% of global bitcoin spot volume according to data from CryptoCompare.
South and Central America have always been a hotbed for Bitcoin adoption. As many countries in this area suffer rampant inflation, their citizens use Bitcoin as a store of value. Venezuela is the worst culprit of this, with estimates placing President Maduro’s inflation rate over 800,000% for 2018. This is orders of magnitude greater than the United States, whose inflation rate is around 3% yearly.
Venezuelans are everyday at risk of losing their spending power. Considering the Venezulan Bolivar fluctuates in price every minute, it isn’t uncommon to see citizens rushing to the grocery store after receiving their paychecks. Their reasoning is that buying and holding groceries is more profitable than holding the bolivar, which could be devalued any second.
This inflation epidemic has made Venezuelans consider Bitcoin, but the switch is not easy. The Venezuelan government has been known to close cryptocurrency exchanges and businesses, and – although Venezuela used to be a hotbed for mining thanks to their inexpensive electricity – recent government restrictions have made mining much riskier.
In addition, Venezuelans have had issues with cryptocurrency exchanges. To avoid running into problems with international sanctions, many US and European based exchanges are refusing to service Venezuelans. Coinbase for example, has reportedly been holding users funds:
Venezuelan users reporting that Coinbase is showing this message when attempting to withdraw or send crypto. Please note that the users are not trying to buy or sell, but to transfer their coins. @CoinbaseSupport pic.twitter.com/nqKuS3tydw
— ⚡Eduardo⚡ (@Codiox) August 2, 2018
Bitcoin the Best Option
It might seem as though bitcoin’s volatility would scare away users, but even with BTC’s wild price swings, it’s still a viable option for Venezuelans.
Moreover, BTC is portable. If anyone is fleeing the country, they can easily store their money in a paper wallet, stuffed into their belongings, and move their funds out of the country without border patrol interference.
a friend who escaped venezuela 🇻🇪 tells me about government officials in the caracas airport confiscating gold from the families leaving. these families risk their life savings in their luggage and chavistas take advantage.
“but they can’t confiscate your bitcoin” he tells me.
— santi 🌎🇦🇷 (@santisiri) September 25, 2018
This is infinitely easier than transporting Bolivars, which have become so devalued that instead of counting bills, businesses weigh their customers money to determine how many bolivars they’re receiving.
Could Venezuela be the first nation to use bitcoin as the national currency? Although citizens might want it, the government does not.
Earlier this year, the Venezuelan government announced the creation of their own cryptocurrency, the Petro, which is pegged to the price of oil. The Petro however, isn’t seeing much use as citizens seem to trust Satoshi more than they do Maduro.