Venezuela has been living with hyperinflation since at least 2014. Its national currency — the Venezuelan bolívar — hit an official inflation rate of 57.3 percent in February 2014, while independent currency analysts were reporting that, by that September, the real inflation rate had already topped 100 percent. In other words, the bolívar (VEF) was depreciating rapidly in value, and ordinary Venezuelans needed something to fill the void it had left as a one-time viable means of exchange.
By definition, hyperinflation is a state in which, as described by the International Accounting Standards Board, “the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency.” However, due to capital controls that had been in place since 2003, Venezuelans were restricted in their ability to obtain U.S. dollars or any other foreign currency. They had no freely accessible outlet for their devalued VEF, with the Venezuelan economy expected to contract in 2015 by 1 percent, according to the IMF.
It was into this economic quagmire that Bitcoin and altcoins (particularly Dash) entered, providing struggling Venezuelans with stores of value and mediums of exchange they could rely upon more than the nosediving bolívar. Ever since 2014 and the onset of hyperinflation, they’ve seen marked increases in ownership and trading, with impressive rises being witnessed in the past few months, as Venezuelan inflation topped an eye-watering 46,000 percent and as the IMF predicted an inflation rate of 1,000,000 percent by the end of 2018.
However the meteoric rise of crypto in Venezuela doesn’t simply result from the desire to avoid the worst effects of hyperinflation. It also stems from the proactive attempts certain cryptocurrencies have made to establish themselves within Venezuela, as well as from a desire among the population to resist and circumvent an authoritarian government, which has used capital controls as one way of starving likely opponents of funding.
As the situation in Venezuela worsens, with President Maduro’s approval rating continuing its plunge from 55 percent in 2013 to around 20 percent today, it’s only likely that more businesses and individuals will turn to cryptocurrency. Since the beginning of this year, there has already been a 344.6 percent rise in the number of Bitcoin traded for Venezuelan bolívars on the LocalBitcoins exchange, a percentage made even more impressive by the fact that it disregards other exchanges and other cryptocurrencies — such as Dash. Seeing as how the recent devaluation of the bolívar is unlikely to make a positive difference in Venezuela’s economic situation, it’s highly probable that this situation will deteriorate further, leaving people with even fewer options for survival. In turn, cryptocurrencies will be traded even more heavily.
Although it’s likely that much of the Venezuelan trade in cryptocurrencies up until now has come from the country’s middle classes — i.e., the 60 percent of the population with internet access, as well as those who know how to mine and program — the near future may see a wider distribution of people involving themselves in crypto. There’s little question that Dash-, Bitcoin- and other crypto-evangelists will continue doggedly raising awareness among Venezuelans about the benefits of cryptocurrencies. Their efforts have been highly fruitful so far, providing an important model that they and other currencies can follow if — or when — another nation is unfortunate enough to experience something akin to Venezuela’s crisis. And for as long as the Venezuelan government continues to impose capital controls (which have been one of the main factors in hyperinflation, among others), there’s nothing to suggest they won’t continue bearing fruit in the coming months and years.
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