Venezuela launched its own cryptocurrency back in December 2017. But so far it seems, it has only been in its test phase. As only from today on (20th August) the Venezuelan state declared that the Petro is its official currency. It will coexist with Venezuela’s fiat currency, the Bolivar. But what does that mean for the crypto space and the financial world in general?
There is only interest in crypto because Venezuela is broken
Venezuela is a socialist state with a broken economy. There would be no fundamental interest in cryptocurrency in the South American state if it would not have become socialist in 1999. The Bolivar is plummeting heavily and faster than Bitcoin or many other cryptocurrencies. The cryptocurrencies in the top 20 who were hit the hardest in the recent correction decreased by 95%. However, the IMF expects the Bolivar to reach 1,000,000% inflation rate by the end of the year. Cryptocurrencies are simply an easily available option to the Bolivar and therefore used. Compared to the Bolivar, really any cryptocurrency is a store of value despite very bearish price action.
Don’t trust the Bolivar – don’t trust the PetroDollar
Just as you should not trust the Bolivar that is undergoing a hyperinflation, you should not trust the Petro as well. The coin is supposedly backed by the state’s oil production. However, the price has fallen from $0.10 USD in December 2017 to just about $0.005 USD some days ago. But how is this possible if the currency was always supposedly backed by the state’s oil production? Especially as the price of oil steadily rose since September last year.
When XPD launched Nicolas Maduro declared that the country gathered $735mn USD in its ICO. However, at its peak XPD only had a market cap of around $6.9mn USD, less than one percent of the alleged funding. So, either Maduro lied or 99% of the money was spent on other assets. In any case, if any free market project would have pulled off something similar, we would legitimately call it a scam coin. The government of Venezuela wants to raise taxes on businesses again and raise the minimum wage. A tightening of precisely the measurements that ruined the country. And relying on oil has not and can not save all of the country’s problems.
Hugo Chavez declared the oil belonged 2 the ppl. He used the oil $ 2 eliminate 75% of extreme poverty, provide free health & education 4 all
— Michael Moore (@MMFlint) March 6, 2013
Venezuela’s plans for PetroDollar unclear
As of writing this, the price has almost tripled and nearly reached the price of $0.015 USD. It could be possible that Venezuela is trying to create a hype around its cryptocurrency to scam people out of more money. But it is very well possible that Venezuela is trying to create a stable money that people can use. Possible that Venezuela has just tested XPD and that it starts to back the currency from now on. However, Venezuela’s government is trying to fund its whole economy, welfare state and military, basically everything with its oil production. A plan that did not save Venezuela’s economy and that most likely will not save the XPD as well.
It is also worrying that Venezuela laid the foundation for a central bank for its cryptocurrency. The blockchain makes a central bank unnecessary. So what’s the use? There is really but one positive news about Venezuela adopting crypto. It will show that the technology is mature enough to serve as a means of payment – even in a devastated country like Venezuela.