Impact and Regulation of Cryptocurrencies in Venezuela

COVID-19 Reports on Latin America and the Caribbean: No. 22

Amidst a failing economy, a global health crises and political turmoil, a new victor has emerged in Venezuela – cryptocurrency. Utilized to buy shoes, pay medical bills, and even order pizza, Venezuelans are relying on digital currencies to cover their day-to-day expenses in lieu of a stable Bolivar and a safe way to use physical currency without potentially becoming infected with COVID-19.

The digitization of currency exchange in Venezuela has quickly facilitated the widespread use of the U.S. Dollar due to the astronomical inflation of the Bolivar. Bloomberg created an inflation tracker entitled The Venezuelan Cafe Con Leche Index, which calculates the rate of inflation based on the average price of a cup of coffee. As of the time of writing this article, the inflation rate is estimated to be at 6,909% with a cup of coffee costing 1,612,000.00-bolivar. The largest currency note, the 50,000-bolivar bill is worth less than a U.S. dime. Dollarization occurs when a national economy collapses and the local currency is replaced by the U.S. dollar in order to create stability, which is widely seen as a controversial practice having many benefits and disadvantages. Econanalitica, a local Venezuelan consulting firm, estimates that more than 60% of all transactions in Venezuela are now made in dollars.

Zelle, a money transfer app, logged over 842 million transactions in Venezuela this year, totaling $217 billion through September, a 64% increase over last year. Most U.S. banks associated with Zelle have not limited Venezuelan use of the app as long as correct and verifiable documentation is provided. According to Early Warning, the organization that created Zelle, “… consumers can only enroll in the Zelle Network using a U.S. mobile number or email address associated with a U.S. based account.” Some Venezuelans rely on friends or relatives residing in the U.S. to operate a bank account on their behalf in order to access the app. In June, Wells Fargo announced to its users that it no longer supports the use of Zelle in Venezuela in part due to U.S. sanctions. Users saved screenshots of the bank informing them of their discontinued support.

The e-wallet service Airtm, founded in Venezuela but now operating in Mexico, allows users to execute currency trades between their own bank accounts and now sees $11 million in transactions per week. In August, Juan Guaido, the head of the opposition-led National Assembly, used Airtm to transfer almost $19 million to front-line healthcare workers. The funds were supplied by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) from frozen U.S. accounts belonging to Venezuela’s central bank.

Between tightening sanctions imposed by the United States and the collapse of the Bolivar, in 2018 Venezuela commissioned Gabriel Jimenez, with aid from Russia, to create an Ethereum-based crypto currency called Petro so it can continue to trade internationally. Petro’s genesis block is now dated May of 2020, suggesting Venezuela has multiple chains. Petro is widely seen as a failure, particularly because its value has been tied to oil, because of the people’s refusal to support it, and because other currencies are simply easier to use. In 2018, Venezuela converted pension bonuses into Petro, and in 2019, paid retirees and prisoners Christmas Bonus in Petro. Whether or not Petro currencies were received by their intended recipients is unclear.

President Donald Trump signed Executive Order 13827 in 2018 which prohibits U.S. citizens from trading Venezuelan cryptocurrencies, including Petro. President Nicolas Maduro claimed in an impassioned speech that Venezuela will “use all the cryptocurrencies in the world” to bypass U.S. sanctions. On October 8, 2020, Venezuela’s National Assembly passed an Anti-Blockade Law granting executive powers to circumvent sanctions, including the authorization of the creation and use of any crypto asset as a monetary instrument. Just last week, on December 8, Venezuela and its National Superintendency of Cryptoactivities and Related Activities (Superintendencia Nacional de Criptoactivos y Actividades Conexas, SUNACRIP, in Spanish)  launched its own cryptocurrency exchange, allowing Venezuelans to change Bolivars for Bitcoin. To avoid conflict, cryptocurrency affiliated companies and apps like Xapo, a Bitcoin wallet provider, and Paxful, a peer-to-peer Bitcoin exchange, are backing out of business in Venezuela.

In 2018, the Superintendence of Cryptoactivites was founded to require miners to be licensed. The Superintendence of Cryptoactivities is defined as an “autonomous institution” that acts as an “auxiliary organ of the justice system”. In 2019 it was replaced by the National Superintendency of Cryptocurrencies, which removed the license requirement. Then, on September 21st 2020, the new Integral Miners Registry announced they would once again issue licenses, but would also require miners to register in the National Mining Pool, which centralizes and supervises miner activity. Cryptocurrency mining is currently legal in Venezuela, but miners must apply for a license with the Comprehensive Registry of Miners. Venezuela is now enlisting the services of the Venezuelan Army to mine Bitcoin inside of a military bunker while reportedly cutting the power to independent crypto miners. It is unclear if the power-cutting is targeting authorized or unauthorized miners.

In a conversation between Admiral Craig Faller, the head of the Southern Command of the United States Armed forces, and the Council of the Americas business forum on October 5th 2020, Admiral Craig Faller said that “60% of the world’s cryptocurrencies [in this] hemisphere is related to what happens in Venezuela”. Despite the conflicts, misinformation, and confusion about regulations regarding cryptocurrencies, crypto is in Venezuela to stay.

By Victoria De La Torre

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