Bolivar, the national currency of Venezuela, has fallen more in value than Bitcoin over the past six months, which has experienced the second worst correction in its history with a 70 percent drop in price.
Venezuelans Still See Bitcoin as a Store of Value and Legitimate Currency
Throughout the past year, many reports from both local reporters and international mainstream media outlets have confirmed that Bitcoin, the most dominant cryptocurrency in the market, has started to be used by residents of Venezuela as an alternative to the Venezuelan Bolivar (VEF).
Previously, despite the hyperinflation of VEF, local residents were able to purchase food and basic necessities such as clothes and medicine with foreign currencies like the US dollar and traditional assets including gold, acquired in the country’s black market.
But, as the country cracked down on black markets, foreign exchanges, and imposed strict capital controls to prevent VEF from being converted to other reserve currencies, local residents were forced to hold onto the Venezuelan bolivar, which continued to lose its value exponentially day after day.
Fed up by the hyperinflation of VEF and the inability to utilize the national currency to purchase any goods, local residents burned piles of cash in front of the authorities to protest against the government.
Meanwhile, amidst the chaos and the instability in th economy of Venezuela, young and tech-savvy graduates who recognized the decline in the probability of seizing opportunities in an economy that has turned into turmoil, started to mine digital assets like Bitcoin and Ethereum with basic mining gear and affordable electricity.
Eventually, having generated enough capital from mining Bitcoin and a consistent revenue source, miners began to purchase food, clothes, and other basic necessities through platforms like Amazon by purchasing gift cards using Bitcoin on cryptocurrency platforms. Purse, for instance, is one of the platforms used by Venezuelan miners to purchase goods on Amazon with Bitcoin and have them delivered to their country.
At this point, it is difficult to even consider VEF a medium of exchange and a store of value, given that it virtually has no value and no leverage against other assets. Local residents cannot use VEF to purchase food and goods, due to the rapid devaluation of the currency.
Already, in 2018, the value of VEF plummeted another 70 percent, being outperformed by Bitcoin, which has had one of the worst years in its history. Bitcoin and the entire cryptocurrency market are highly volatile because they are still at its infancy. But, a cryptocurrency outperforming a national currency during one of the worst corrections in its entirety is unheard of and unprecedented.
Volume is Surging
According to Localbitcoins and Coin Dance, the weekly trading volume of Bolivar-to-Bitcoin has achieved an all-time high in recent months, due to the rising demand for BItcoin by local residents, as shown in the chart provided by Quartz below.
Iran, another region that has seen a rapid decline in its economy due to strict sanctions imposed by the US, has also proposed the usage of cryptocurrencies to settle payments between Iran and local allies. In the long-term, countries and people that are isolated from the global financial network and system will likely start utilizing cryptocurrencies as an alternative.