Cryptocurrency in Venezuela: An Economic Lifeline Amidst Hyperinflation and Sanctions

Cryptocurrency in Venezuela: A Digital Fortress Amid Crisis

In Venezuela, cryptocurrency is no longer just a digital asset; it's becoming an economic lifeline. Faced with hyperinflation and government restrictions on black-market dollar transactions, Venezuelans are increasingly turning to blockchain technology to safeguard their wealth.

From small family-owned shops to nationwide chain stores, merchants are embracing digital wallets like Binance and Airtm to receive payments. Some businesses are even paying employee salaries in crypto. Moreover, one of the nation's top universities is now offering cryptocurrency courses.

"Now, many places accept cryptocurrency," said Victor Sousa, a shopper, while purchasing phone accessories with USDT, a stablecoin pegged to the US dollar. "My goal is to convert all my savings into cryptocurrency in the future."

The Rise of Crypto Amid Economic Instability

Even before the bolívar's collapse in late 2023, cryptocurrency was already experiencing a surge in Venezuela. According to data from blockchain analytics firm Chainalysis, cryptocurrency usage in Venezuela increased by a staggering 110% in the 12 months ending June 2024, ranking it 13th in global crypto adoption.

After the government abandoned defending the bolívar in October 2023, demand for safe-haven assets peaked. Data from the independent Venezuelan Finance Observatory (OVF) indicates that the bolívar lost over 70% of its value between October 2023 and June 2024, and the country's annual inflation rate soared to 229% in May 2024.

"Venezuelans are using cryptocurrency out of necessity for survival," noted Aarón Olmos, an economist at the Higher Institute of Administration Studies in Caracas. "They are dealing with inflation, low wages, foreign exchange shortages, and the numerous hurdles to opening bank accounts."

Government Actions and Reactions

In an attempt to prop up the bolívar, President Nicolás Maduro arrested dozens of individuals operating black-market dollar exchange websites, which further accelerated the adoption of cryptocurrency. The Venezuelan central bank stopped publishing inflation data since October 2023, independent economists have been arrested, and the OVF suspended data releases as of May 2024 due to government harassment of its members.

Although the Trump administration allowed Chevron to resume oil production and exports in Venezuela last month, which the opposition called providing a "lifeline" to Maduro, Venezuela remains under comprehensive sanctions. Some individuals, who began using cryptocurrency during the hyperinflation period of 2016-2019, remain cautious.

"In our distorted economy, sound judgment is more important than capital," said Aníbal Garrido, director of the cryptocurrency course at Andrés Bello Catholic University in Caracas.

Government Involvement and Regulatory Volatility

Even some Venezuelan government officials are involved in cryptocurrency, with numerous officials charged by the U.S. for using virtual currencies to evade sanctions or launder money. However, the government's stance on crypto has been volatile: it launched the world's first national cryptocurrency, the "petro," in 2018, and despite linking 50% of the minimum wage to the petro, the project was terminated in 2023 due to a lack of market acceptance. In 2023, the Maduro government shut down the main cryptocurrency exchange regulator after top regulators were accused of embezzling funds related to oil-backed cryptocurrency trades.

The Increasing Prevalence of USDT

However, the use of USDT is gaining traction. Gabriel Santana, an accountant at a hardware store in Caracas, often uses USDT to pay suppliers and employee salaries. While there are losses when converting, inflation and the rate of bolívar devaluation offset those costs. "When we receive large amounts of bolívars, we buy USDT on Binance. Although there is a short-term loss, we earn in the long term," Santana said.

Challenges and Glimmers of Hope

For Venezuelans, acquiring cryptocurrency is not easy. Due to U.S. sanctions on Venezuelan banks, Binance, which was fined $4.3 billion in 2023 for inadequate anti-money laundering, has restricted transactions with sanctioned banks and frozen related accounts. "Platforms, infrastructure, and even basic internet services are limited, but even so, the [cryptocurrency] ecosystem is taking shape," Garrido said. "In adversity, a more rational and insightful community is forming."

Shopkeepers in downtown Caracas believe that accepting cryptocurrency payments has become a competitive necessity. Masiel Bronco, who runs a small tech shop, said that if she didn't accept USDT payments, she would lose customers, "The competition is too fierce."